DOWNSTREAM R&D RIVALRY WITH SPILLOVERS AND DISCRIMINATORY INPUT PRICING |
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| Authors: | PEI‐CHENG LIAO |
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| Affiliation: | 1. National Taiwan University;2. * The author would like to thank two anonymous referees for their valuable suggestions and constructive comments. Financial support from the College of Management at National Taiwan University is gratefully acknowledged. |
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| 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. |
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