Strategic commitments of downstream investment firms

DongJoon Lee and Joonghwa Oh

Managerial and Decision Economics, 2022, vol. 43, issue 6, 2098-2107

Abstract: This study investigates the strategic commitment of downstream firms' private R&D investments. While an observable investment, as a pre‐production commitment, influences an upstream firm's input price, it affects a rival downstream firm's output. We show that both downstream firms commit to underinvestment (overinvestment) to reduce an input price (compete with a rival firm) in cases of small (large) product substitutability. However, they make their aggressive investments unobservable in the market in cases of medium product substitutability. Furthermore, when both products are sufficiently differentiated, consumer surplus and social welfare are larger when downstream investments are unobservable.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/mde.3511

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:43:y:2022:i:6:p:2098-2107

Access Statistics for this article

Managerial and Decision Economics is currently edited by Antony Dnes

More articles in Managerial and Decision Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().