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



3. Benchmark Case: Innovation and Pricing Decisions in a Pure Oligopsony

Pr ce Compet t on at the Post-Innovat on Stage (3rd Stage of the Game)

In the post-innovation stage of the pure duopsony, the two IOFs seek to determine the input prices that
maximize their profits holding Nash conjectures (i.e., assuming that their decisions will not affect the
behavior of their rival).1 Specifically, the problem of the two IOFs at the 3rd stage of the game can be
expressed as:

(5)


maxΠ (3)
w (3)


=(p -c -w (3))x (3)


where {C, I} , p is the price of Firm ’s final product, and c is the post-innovation marginal

processing cost of Firm . All other variables are as previously defined.

Solving the problem of the two IOFs gives their best response functions as:

wo) = 2 ( w1 (3)+ Pi-t - cû

where j{C, I} and j. Solving these best response functions simultaneously and substituting


wC* (3) and wI*(3) into equations (3) and (4) gives the Nash equilibrium prices and quantities as:


(6)

(7)


w⅛) = 3 (2 Pi + Pj


-2ci-cj-3t)


*     31 - ci+ cj + P1 - Pj

x3 _           61


The equilibrium profits of each IOF are then given by:


(3t-c+c+P-P)2

(8)    *(3) =■(-------i j )

i(3)                  18t


and are a function of the degree of producer heterogeneity, the prices of the products produced by the two
IOFs, and their post-innovation processing costs.
Ceteris Paribus, the lower the post-innovation
processing cost of a firm, the greater its profits at the 3rd stage of the game.


1 The assumption of Nash conjectures is maintained throughout the analysis.




More intriguing information

1. LOCAL CONTROL AND IMPROVEMENT OF COMMUNITY SERVICE
2. The name is absent
3. Evaluating the Impact of Health Programmes
4. Industrial Employment Growth in Spanish Regions - the Role Played by Size, Innovation, and Spatial Aspects
5. Workforce or Workfare?
6. The name is absent
7. AGRIBUSINESS EXECUTIVE EDUCATION AND KNOWLEDGE EXCHANGE: NEW MECHANISMS OF KNOWLEDGE MANAGEMENT INVOLVING THE UNIVERSITY, PRIVATE FIRM STAKEHOLDERS AND PUBLIC SECTOR
8. A Location Game On Disjoint Circles
9. Transfer from primary school to secondary school
10. Multifunctionality of Agriculture: An Inquiry Into the Complementarity Between Landscape Preservation and Food Security