Bargaining in vertical relationships and suppliers' R&D profitability


Köhler, Christian


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URL: https://ub-madoc.bib.uni-mannheim.de/37308
URN: urn:nbn:de:bsz:180-madoc-373083
Document Type: Working paper
Year of publication: 2014
The title of a journal, publication series: ZEW Discussion Papers
Volume: 14-087
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > Zentrum für Europ. Wirtschaftsforschung (ZEW)
MADOC publication series: Veröffentlichungen des ZEW (Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: D22 , L22 , O32,
Keywords (English): Bargaining , firm performance , vertical relationships
Abstract: 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 manufacturing 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 estimated 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.

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Köhler, Christian (2014) Bargaining in vertical relationships and suppliers' R&D profitability. Open Access ZEW Discussion Papers Mannheim 14-087 [Working paper]
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