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Designing
input prices to motivate process innovation |
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Yongmin
Chen, David E.M. Sappington |
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International Journal of Industrial Organization 27 (2009) 390¡V402 |
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The authors examine the optimal design of regulated input prices,
accounting explicitly for their impact on incentives for process innovation.
Optimal input prices are shown to vary both with the prevailing vertical
industry structure and with the nature of downstream competition. The optimal
input pricing rule tends to provide stronger incentives for innovation under
vertical integration than under vertical separation in the presence of downstream
Cournot competition. The stronger incentives tend to be implemented under
vertical separation in the presence of downstream Bertrand competition. |
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