Document Type
Article
Publication Date
10-29-2024
Abstract
Many firms buy a production input from a competitor. However, managers often worry that this supply relationship may give their competitor valuable knowledge about new product innovations. We develop a two-period model in which a firm can buy an input from a competitor or a third party in each period. In order to innovate, the firm must invest in improving the input, which results in its supplier learning to produce a higher quality input. We show that buying from the competitor: (i) increases short-term profits by softening price competition and (ii) may reduce long-term profits by preventing investment in innovation. Our results imply that the classic holdup problem, which leads to underinvestment in innovation, becomes more severe when a firm buys from its competitor who benefits from knowledge spillover.
Recommended Citation
Dominique Olié Lauga, Matthew Selove, Mohammad Zia (2024) Buying from a Competitor: A Model of Knowledge Spillover and Innovation. Marketing Science 0(0). https://doi.org/10.1287/mksc.2023.0148
Peer Reviewed
1
Copyright
INFORMS
Included in
Business Administration, Management, and Operations Commons, Operations and Supply Chain Management Commons, Other Business Commons
Comments
This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Marketing Science in 2024 following peer review. This article may not exactly replicate the final published version. The definitive publisher-authenticated version is available online at https://doi.org/10.1287/mksc.2023.0148