It is generally in its supply chain partners' interest for a downstream firm to invest in innovations. However, in response to the downstream firm innovation, the upstream suppliers may have an incentive to opportunistically increase their wholesale prices. The hold-up problem these opportunistic behaviors create leads to the downstream firm to underinvest in innovation. Clearly, this hold-up problem could be eliminated by a pre-commitment to price. However, by making an advance commitment to price, a downstream supplier sacrifices an important means of responding to demand uncertainty. In this paper we research on the trade-off: should it commit to a price in order to encourage innovation, or should it remain flexible in order to respond to demand uncertainty.
Strategic Commitment to Price to Stimulate Downstream Innovation under Supplier Competition
First International Conference on Transportation Engineering ; 2007 ; Southwest Jiaotong University, Chengdu, China
2007-07-09
Aufsatz (Konferenz)
Elektronische Ressource
Englisch
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