DOWNSTREAM R&D RIVALRY WITH SPILLOVERS AND DISCRIMINATORY INPUT PRICING

Pei-Cheng Liao

Australian Economic Papers, 2008, vol. 47, issue 4, pages 376-388

Abstract: 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.

Date: 2008

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