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Downstream R&D Rivalry With Spillovers And Discriminatory Input Pricing

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  • PEI‐CHENG LIAO

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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  • Pei‐Cheng Liao, 2008. "Downstream R&D Rivalry With Spillovers And Discriminatory Input Pricing," Australian Economic Papers, Wiley Blackwell, vol. 47(4), pages 376-388, December.
    • Handle: RePEc:bla:ausecp:v:47:y:2008:i:4:p:376-388
    DOI: 10.1111/j.1467-8454.2008.00355.x
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