Impact of Downstream Competition on Innovation in a Supply Chain

41 Pages Posted: 6 Jun 2012

See all articles by Jingqi Wang

Jingqi Wang

Northwestern University - Kellogg School of Management

Hyoduk Shin

University of California, San Diego (UCSD) - Rady School of Management

Date Written: June 6, 2012

Abstract

We explore the impact of downstream competition on upstream innovation in a supply chain consisting of an upstream supplier who invests in innovation and downstream manufacturers who sell to consumers. We show that the impact of downstream competition between manufacturers on innovation depends on the contract form linking the manufacturers and the supplier. If it is the supplier who sets the wholesale price, downstream competition does not affect upstream innovation. However, if it is the manufacturers who set wholesale prices, downstream competition can induce more innovation in a supply chain. If the manufacturers and the supplier bargain, downstream competition can either increase or decrease upstream innovation. Moreover, these results are robust under the presence of a complementary component supplier. We also compare the effects of contract forms in motivating upstream innovation and demonstrate that all firms within a supply chain can be better off by giving the supplier more channel power, i.e., letting the supplier set the wholesale price rather than bargaining.

Keywords: supply chain management, innovation, competition

Suggested Citation

Wang, Jingqi and Shin, Hyoduk, Impact of Downstream Competition on Innovation in a Supply Chain (June 6, 2012). Available at SSRN: https://ssrn.com/abstract=2078743 or http://dx.doi.org/10.2139/ssrn.2078743

Jingqi Wang

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Hyoduk Shin (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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