Impact of Competition on Innovation When Selling through an Intermediary Retailer

Abstract

We explore the impact of competition on innovation in a supply chain consisting of upstream manufacturers investing in innovation and a downstream retailer selling to consumers. We find that the competition between manufacturers induces more innovation. Moreover, the competition affects the inferior manufacturers innovation investment more than the superior manufacturers. In addition, studying the effect of complementary innovative-component manufacturers, we demonstrate that under the presence of a complementary component manufacturer, competition fosters even more innovation by all manufacturers.