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Franchise fee, contract bargaining, and economic growth

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Listed:
  • Vey Wang
  • Chung-Hui Lai
  • Lung-Sheng Lee
  • Shih-Wen Hu

Abstract

This paper combines the industrial organization (IO) theory and the R&D-based endogenous growth theory in a model of a successive imperfect competitive economy. The current study assumes that firms between upstream and downstream industries bargain over both the price of intermediate goods and the franchise fee. Findings show that the intermediate goods firm with a R&D sector charges the price equal to the marginal cost. Economic rent may also be partly transferred into the franchise fee determined by the relative bargaining power. In particular, the traditional double marginalization result, such as in Spengler (1950), does not take place here due to the above-mentioned bargaining scheme. Finally, this work shows that final goods firms in vertically linked industries play an important role in an economic growth model. The more bargaining power the final goods firms have (or the more returns to specialization upstream firms have, or the less substitution elasticity the final goods have), the more the economy grows. However, the consumer preference for diversity seemingly does not affect economic growth rate.

Suggested Citation

  • Vey Wang & Chung-Hui Lai & Lung-Sheng Lee & Shih-Wen Hu, 2010. "Franchise fee, contract bargaining, and economic growth," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 19(6), pages 539-552.
    • Handle: RePEc:taf:ecinnt:v:19:y:2010:i:6:p:539-552
    DOI: 10.1080/10438590903343433
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    References listed on IDEAS

    as
    1. Andreas Panagopoulos & In-Uck Park, 2008. "Patent Protection, Takeovers, and Startup Innovation: A Dynamic Approach," The Centre for Market and Public Organisation 08/201, The Centre for Market and Public Organisation, University of Bristol, UK.
    2. Daron Acemoglu & Philippe Aghion & Rachel Griffith & Fabrizio Zilibotti, 2010. "Vertical Integration and Technology: Theory and Evidence," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 989-1033, September.
    3. Vettas, Nikolaos & Petrakis, Emmanuel & Milliou, Chrysovalantou, 2003. "Endogenous Contracts Under Bargaining in Competing Vertical Chains," CEPR Discussion Papers 3976, C.E.P.R. Discussion Papers.
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    Citations

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    Cited by:

    1. Aditya Bhattacharjea & Srishti Gupta, 2022. "Alternative Forms of Buyer Power in a Vertical Duopoly: Implications for profits and consumer welfare," Working papers 326, Centre for Development Economics, Delhi School of Economics.
    2. Wang, Vey & Lai, Chung-Hui, 2010. "Franchise Fee, Tax/Subsidy Policies and Economic Growth," MPRA Paper 27745, University Library of Munich, Germany.
    3. Aditya Bhattacharjea & Srishti Gupta, 2024. "Alternative forms of buyer power in a vertical duopoly: implications for profits, welfare, and cost pass-through," Journal of Economics, Springer, vol. 142(2), pages 163-198, July.
    4. Lai, Chung-hui & Wang, Vey, 2015. "Effects of intellectual property rights protection and integration on economic growth and welfare," Economics Discussion Papers 2015-1, Kiel Institute for the World Economy (IfW Kiel).
    5. Lai, Chung-hui, 2013. "(In)determinacy, bargaining, and R&D policies in an economy with endogenous technological change," Economics Discussion Papers 2013-14, Kiel Institute for the World Economy (IfW Kiel).
    6. Wang, Vey & Lai, Chung-Hui, 2011. "Franchise fee, competition and economic growth," Economic Modelling, Elsevier, vol. 28(5), pages 2090-2099, September.
    7. Chung-Hui Lai, 2015. "Effects of Intellectual Property Rights Protection and Integration on Economic Growth and Welfare," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 11(2), pages 143-162, July.

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