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Downstream R&D Rivalry With Spillovers And Discriminatory Input Pricing




This paper examines how discriminatory input pricing by the upstream monopolist affects the R&D choices of downstream duopolists in the presence of R&D spillovers. We show that the monopoly supplier can benefit from a precommitment to uniform pricing because under uniform pricing the downstream firms invest more in R&D, leading to larger output and thus benefiting the supplier. When R&D spillovers are sufficiently large, the downstream firms are also better off under uniform pricing. Moreover, social welfare is always higher under uniform pricing. Copyright 2008 The Author. Journal compilation 2008 Blackwell Publishing Ltd/University of Adelaide and Flinders University.

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  • Pei-Cheng Liao, 2008. "Downstream R&D Rivalry With Spillovers And Discriminatory Input Pricing," Australian Economic Papers, Wiley Blackwell, vol. 47(4), pages 376-388, December.
  • Handle: RePEc:bla:ausecp:v:47:y:2008:i:4:p:376-388

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    References listed on IDEAS

    1. Yoshihiro Yoshida, 2000. "Third-Degree Price Discrimination in Input Markets: Output and Welfare," American Economic Review, American Economic Association, vol. 90(1), pages 240-246, March.
    2. Justus Haucap & Christian Wey, 2004. "Unionisation structures and innovation incentives," Economic Journal, Royal Economic Society, vol. 114(494), pages 149-165, March.
    3. Kline, J. Jude, 2000. "Research joint ventures and the cost paradox," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 1049-1065, October.
    4. Valletti, Tommaso M., 2003. "Input price discrimination with downstream Cournot competitors," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 969-988, September.
    5. Giuseppe Colangelo, 2006. "Wholesale Pricing When Buyers Are Asymmetric Cournot Competitors," Manchester School, University of Manchester, vol. 74(2), pages 156-169, March.
    6. Kamien, Morton I. & Zang, Israel, 2000. "Meet me halfway: research joint ventures and absorptive capacity," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 995-1012, October.
    7. Choi, Jay Pil, 1995. "Optimal tariffs and the choice of technology Discriminatory tariffs vs. the 'Most Favored Nation' clause," Journal of International Economics, Elsevier, vol. 38(1-2), pages 143-160, February.
    8. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-596, September.
    9. DeGraba, Patrick, 1990. "Input Market Price Discrimination and the Choice of Technology," American Economic Review, American Economic Association, vol. 80(5), pages 1246-1253, December.
    10. repec:kap:jeczfn:v:75:y:2002:i:1:d:10.1007_s007120200000 is not listed on IDEAS
    11. Kaiser, Ulrich, 2002. "An empirical test of models explaining research expenditures and research cooperation: evidence for the German service sector," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 747-774, June.
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