05/11/2005

Downstream Research Joint Venture with Upstream Market Power

Views: 2212
In this paper, we examine how the structure of an imperfectly competitive input market affects final-good producers? incentives to form a Research Joint Venture (RJV), in a differentiated duopoly where R&D investments exhibit spillovers. Although a RJV is always profitable, downstream firms? incentives for R&D cooperation are non-monotone in the structure of the input market, with incentives being stronger under a monopolistic input supplier, whenever spillovers are low. In contrast to the hold-up argument, we also find that under non-cooperative R&D investments and weak free-riding, final-good producers invest more when facing a monopolistic input supplier, compared with investments under competing vertical chains. Integrated innovation and competition policies are also discussed.
Department Of Economics Website

myEcon Newsletter

Join the notification list of the Department of Economics.