Coordinating R&D Efforts for Quality Improvement Along a Supply Chain
Quaderni - Working Paper DSE N° 1054
20 Pages Posted: 17 Feb 2016
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: Suggested Citation