Coordinating R&D Efforts for Quality Improvement Along a Supply Chain

Quaderni - Working Paper DSE N° 1054

20 Pages Posted: 17 Feb 2016

See all articles by Luca Lambertini

Luca Lambertini

University of Bologna - Department of Economics

Date Written: February 16, 2016

Abstract

The optimal design of two-part tariffs is investigated in a dynamic model where two firms belonging to the same supply chain invest in R&D activities to increase the quality of the final product. It is shown that the replication of the vertically integrated monopolist’s performance can be attained using a TPT in which the fee is a linear function of either the upstream R&D effort or product quality itself. The possibility of relying on R&D figures appearing in the upstream firm’s balance sheet is desirable as quality enhancement might not be observable or verifiable.

Keywords: innovation, product quality, vertical separation, vertical integration, outsourcing

JEL Classification: C73, L12, O31

Suggested Citation

Lambertini, Luca, Coordinating R&D Efforts for Quality Improvement Along a Supply Chain (February 16, 2016). Quaderni - Working Paper DSE N° 1054, Available at SSRN: https://ssrn.com/abstract=2733137 or http://dx.doi.org/10.2139/ssrn.2733137

Luca Lambertini (Contact Author)

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39 051 2092600 (Phone)
+39 051 2092664 (Fax)

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