Why Powerful Buyers finance Suppliers’ R&D
AbstractIt is a common concern that pricing pressure by powerful buyers discourages suppliers' R&D investments. Employing a simple monopsonist - competitive upstream industry - framework, this paper qualifies this view in two respects. First, the monopsonist has an incentive to subsidize upstream R&D which yields more upstream R&D and higher profits in both industries than the monopsonist's commitment to higher prices. Secondly, in the presence of intra-industry R&D spillovers between upstream firms, the monopsonist has an even stronger incentive to finance upstream R&D. If the monopsonist finances more than fifty percent of suppliers R&D efforts, R&D investments in upstream industry will be higher than in the case of buyer competition.
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Bibliographic InfoPaper provided by Universitätsbibliothek Wuppertal, University Library in its series Schumpeter Discussion Papers with number sdp08004.
Length: 21 pages
Date of creation: Oct 2008
Date of revision:
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Web page: http://elpub.bib.uni-wuppertal.de
Vertical Relationships; Monopsony; Buyer Power; R&D; Knowledge Spillovers;
Find related papers by JEL classification:
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-25 (All new papers)
- NEP-COM-2008-11-25 (Industrial Competition)
- NEP-IND-2008-11-25 (Industrial Organization)
- NEP-INO-2008-11-25 (Innovation)
- NEP-KNM-2008-11-25 (Knowledge Management & Knowledge Economy)
- NEP-MIC-2008-11-25 (Microeconomics)
- NEP-TID-2008-11-25 (Technology & Industrial Dynamics)
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