Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/68718
Authors: 
Bönte, Werner
Wiethaus, Lars
Year of Publication: 
2008
Series/Report no.: 
Schumpeter Discussion Papers 2008-004
Abstract: 
It is a common concern that pricing pressure by powerful buyers discourages suppliers' R&D investments. Employing a simple monopsonist - competitive upstream industry - framework, this paper qualifies this view in two respects. First, the monopsonist has an incentive to subsidize upstream R&D which yields more upstream R&D and higher profits in both industries than the monopsonist's commitment to higher prices. Secondly, in the presence of intra-industry R&D spillovers between upstream firms, the monopsonist has an even stronger incentive to finance upstream R&D. If the monopsonist finances more than fifty percent of suppliers R&D efforts, R&D investments in upstream industry will be higher than in the case of buyer competition.
Subjects: 
Vertical Relationships
Monopsony
Buyer Power
R&D
Knowledge Spillovers
JEL: 
O31
O32
L13
L20
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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