Buyer power and suppliers' incentives to innovate
AbstractBuyer power is widely considered to decrease innovation incentives of suppliers. However, there is little empirical evidence for this statement. Our paper analyses how buyer power influences innovation incentives of upstream firms while taking into account the type of competition in the downstream market, namely price and technology. We explore this relationship empirically for a unique dataset containing 1,129 observations of German firms from manufacturing and service sectors including information on the economic dependency of firms from their buyers. Using a generalised Tobit model, we find a negative effect of buyer power on a supplier's likelihood to start R&D activities. This negative effect is mitigated if the supplier faces powerful buyers operating under strong price competition. There is also weak evidence for a negative effect of buyer power on suppliers' R&D intensity if the powerful buyer operates under strong technology competition. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 12-058.
Date of creation: 2012
Date of revision:
Innovation; Buyer Power;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-24 (All new papers)
- NEP-COM-2012-11-24 (Industrial Competition)
- NEP-CSE-2012-11-24 (Economics of Strategic Management)
- NEP-IND-2012-11-24 (Industrial Organization)
- NEP-INO-2012-11-24 (Innovation)
- NEP-SBM-2012-11-24 (Small Business Management)
- NEP-TID-2012-11-24 (Technology & Industrial Dynamics)
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