Profit-enhancing competitive pressure in vertically related industries

Noriaki Matsushima and Tomomichi Mizuno

Journal of the Japanese and International Economies, 2012, vol. 26, issue 1, 142-152

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.

Keywords: Upstream firm; Competition; Bilateral oligopoly; R&D (search for similar items in EconPapers)
JEL-codes: L13 O31 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (10)

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Working Paper: Profit enhancing competitive pressure in vertically related industries (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:26:y:2012:i:1:p:142-152

DOI: 10.1016/j.jjie.2012.01.001

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