Reexamining the effect of the most-favored-nation provision in input prices on R and D incentives

Jeong Yoo Kim, Jae Nahm

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

We examine the effect of the most-favored-nation provision in input prices on downstream firms' R and D incentives. Contrary to the previous literature, we show that the effect depends on the extent of substitutability between downstream firms if they compete in two-part tariffs. When a downstream firm lowers its marginal cost, it entails two conflicting effects on the upstream firm's pricing for inputs, the standard elasticity effect of penalizing the low-cost firm and the market share effect of rewarding it. If substitutability between downstream products is high enough, the latter dominates the former, and thus downstream firms will choose a higher marginal cost technology under the MFN provision.

Original languageEnglish
Pages (from-to)201-217
Number of pages17
JournalInternational Journal of Industrial Organization
Volume25
Issue number1
DOIs
Publication statusPublished - 2007 Feb

Keywords

  • Access charge
  • MFN provision
  • Price discrimination
  • Two-part tariff

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

Fingerprint Dive into the research topics of 'Reexamining the effect of the most-favored-nation provision in input prices on R and D incentives'. Together they form a unique fingerprint.

  • Cite this