R&D and Output in a Regulated Vertically Integrated Oligopoly

Rajeev Goel

Bulletin of Economic Research, 1999, vol. 51, issue 4, 339-47

Abstract: This paper examines input price regulation's effects on research and development (R&D) and output in a vertically integrated industry. A single integrated firm produces the crucial input and the output. The non-integrated rival does not produce the input but buys it from the integrated firm at a regulated price. Only the integrated firm engages in cost-reducing R&D. Results show that changes in input price have a negative effect on the integrated firm's output and R&D. The non-integrated firm's output response to changes in input price depends upon the slope of the demand curve. The welfare analysis examines the social desirability of such regulation. Copyright 1999 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 1999
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