R&D and Output in a Regulated Vertically Integrated Oligopoly
Bulletin of Economic Research, vol. 51, no. 4, pp. 339-47
Posted: 6 Apr 2016
Date Written: 1999
This paper examines input price regulation's effects on research and development (R&D) and output in a vertically integrated industry. A single integrated firm produces the crucial input and the output. The non-integrated rival does not produce the input but buys it from the integrated firm at a regulated price. Only the integrated firm engages in cost-reducing R&D. Results show that changes in input price have a negative effect on the integrated firm's output and R&D. The non-integrated firm's output response to changes in input price depends upon the slope of the demand curve. The welfare analysis examines the social desirability of such regulation.
Suggested Citation: Suggested Citation