Bargaining in vertical relationships and suppliers' R&D profitability

Arbeitspapier

This paper explores the effect of bargaining in vertical relationships on the profitability of suppliers' R&D investments. Studies on the relationship between R&D and firm profitability mostly concentrate on the impact of horizontal market structure and neglect vertical interac-tions. Building on theoretical and empirical evidence about the effects of bargaining in vertical relationships, the crucial determinants of a supplier's bargaining power are identified as the market position and the degree of concentration in the buyer portfolio. With respect to R&D profitability the latter is expected to diminish returns from R&D, while the former is expected to increase it. The hypotheses are tested using a sample of 472 German manufactur-ing firms. The empirical findings support all hypotheses and highlight the importance of tak-ing a supplier's bargaining power into account when estimating R&D profitability. The esti-mated effects are considerable: for an average R&D performing supplier an increase of R&D intensity in 2010 by a percentage point would reduce profits by about 14 % in 2012 given the supplier depends completely on the largest three buyers and does hold an average market share. Contrastingly, a monopolist R&D performing supplier with average buyer concentra-tion would experience a profit increase by 10 % in 2012.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 14-087

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Empirical Analysis ; Firm Organization and Market Structure ; Management of Technological Innovation and R&D
• Subject: Bargaining ; Firm performance ; Vertical relationships

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Köhler, Christian
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/103550
• URN: urn:nbn:de:bsz:180-madoc-373083
• Last update: 10.03.2025, 11:45 AM CET