Publisher:
Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE), Düsseldorf
Abstract:
We show that competing downstream firms may rather invest in their inefficient inhouse production than help improve the technology of the efficient supplier, even if this is costless. Even worse, a downstream firm can have strong incentives to decrease the efficiency of the supplier in order to improve its outside options. We demonstrate that non-controlling partial backward ownership can align the incentives of the supplier and its customers with respect to supply chain innovations.
