THE EFFECT OF MARKETING COOPERATIVES ON COST-REDUCING PROCESS INNOVATION ACTIVITY



12


(29)   rC


xC (1)

ψ


(30)


rI


t - rC + pI - pC


4tψ - 1


Solving these best response functions simultaneously, we get the equilibrium levels of innovation:

(31)

(32)


rC


'
rI


xC (1)

ψ


tψ-xC(1) +ψ(pI-pC)


ψ(4tψ-1)


The total innovation in the mixed duopsony is then:
(33)
r = r + r = tψ + xC(1) (4tψ - 2) + ψ(Pi - Pc )

T C I              ψ(4tψ -1)

Plugging rC' and rI' in the expressions for innovation costs, post-innovation profits, and member welfare,
we get:

(34)


`    _[xC(1) - ψ + ψ(Pc - pI )]2

I (2,3) =         2ψ (4 tψ -1)

x

(35) MW  =I pc -c + —

ι ψ


c   IxC (1)


12

__∕γ2

2 txC (1)


x2

xC (1)

2ψ


Price ComPetition at the Pre-Innovation Stage in the Mixed OligoPsony

Unlike the pure oligopsony case, in the mixed duopsony the outcome of price competition in the pre-
innovation stage affects firms’ optimal decisions and payoffs in subsequent stages (see equations (31),
(32), (34) and (35)). Thus, in stage 1 the IOF seeks to determine the input price that maximizes its total
profits (i.e., its profits at the pre-innovation stage plus its profits at the post-innovation stage minus its
innovation costs), i.e.,

(36)


maxΠTI=(PI-c-wI(1))xI(1)
wI(1)


[xC(1) - tΨ + ψ(Pc - Pi )]2

2ψ(4tψ -1)


The best response function of the IOF is given by:



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