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| Technological Innovation, Industrial Chain and Social Welfare |
| FU Hong-yan LI Chang-ying |
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Abstract In this paper, we develop a model in which two asymmetric downstream firms purchase intermediate inputs from an upstream supplier and compete against each other a la Cournot fashion. Contrary to common perceptions, we find that wholesale price obtained by the efficient firm is higher and a cost reducing innovation by the downstream less efficient firm reduces welfare if the innovating firm is sufficiently inefficient.
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Received: 25 December 2009
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2010, Vol. 1 
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