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Profit-enhancing competitive pressure in vertically related industries

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  • Matsushima, Noriaki
  • Mizuno, Tomomichi

Abstract

Under a simple Cournot model with vertical relations, when downstream firms engage in process R&D, the profits of input suppliers for which upstream competition exists may be larger than those in which each input supplier has a bilateral monopoly relation with its buyer (downstream firm). This is because upstream competition leads to higher levels of investment by the downstream firms. Furthermore, we incorporate the decisions of downstream firms to acquire the ability to procure input from potential outside suppliers, which has the effect of placing competitive pressure on existing input suppliers. We show that no downstream firm acquires such an ability to procure its input from potential outside suppliers in some cases although the acquisition could benefit the input suppliers.

Suggested Citation

  • Matsushima, Noriaki & Mizuno, Tomomichi, 2012. "Profit-enhancing competitive pressure in vertically related industries," Journal of the Japanese and International Economies, Elsevier, vol. 26(1), pages 142-152.
  • Handle: RePEc:eee:jjieco:v:26:y:2012:i:1:p:142-152
    DOI: 10.1016/j.jjie.2012.01.001
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Naylor, Robin & Soegaard, Christian Author-workplace-Name University of Warwick, 2018. "The Effects of Entry in Oligopolistic Trade with Bargained Input Prices," The Warwick Economics Research Paper Series (TWERPS) 1148, University of Warwick, Department of Economics.
    2. Takauchi, Kazuhiro, 2015. "Endogenous transport price and international R&D rivalry," Economic Modelling, Elsevier, vol. 46(C), pages 36-43.
    3. Yamada, Mai, 2016. "The Optimal Trading Partner for an Upstream Monopolist," MPRA Paper 70325, University Library of Munich, Germany.
    4. Naylor, Robin A & Soegaard, Christian, 2014. "The Effects of Entry in Oligopoly with Bargained Wages," The Warwick Economics Research Paper Series (TWERPS) 1044, University of Warwick, Department of Economics.
    5. Chun-Hung Chen, 2016. "Trade Policies for Intermediate Goods under International Interdependence," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 12(2), pages 227-249, August.

    More about this item

    Keywords

    Upstream firm; Competition; Bilateral oligopoly; R&D;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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