Affiliation:
1. Sauder School of Business University of British Columbia 2053 Main Mall Vancouver V6T1Z2 British Columbia Canada
Abstract
AbstractHow does a monopsonist incentivize its supplier to innovate? By decreasing the short‐run profit of the supplier, the monopsonist can increase the supplier's incentive to invest in R&D by lessening the supplier's Arrow's replacement effect. The monopsonist engages in this practice despite a distortion in its trade volume with the supplier that causes inefficiency. We discuss implications for the boundaries of the firm.
Subject
Economics and Econometrics,General Business, Management and Accounting,Accounting