Stable Production Networks

In contrast to the polluter-pays principle, environmental taxes are imposed at various points in the chain of production and distribution (e.g., the fuel and regulatory energy taxes in the Netherlands). To discuss the effects of environmental tax burden ratio on economic outcomes, we consider a market where there is one upstream firm and two downstream firms that pollute the environment. The government imposes environmental tax on the upstream and downstream firms at some tax burden ratio. Given the tax burden, the downstream firms invest in pollution-abatement technology. After investment, the upstream firm chooses a wholesale price, and then the downstream firms compete a la Cournot. We obtain the following results: First, the total amount of environmental damage increases with the tax burden in the downstream market if the pollution-abatement technology is inefficient. Second, the profit of downstream firms increases with their tax burden if the tax burden is small. Finally, in the optimal tax burden scenario, both upstream and downstream firms may have to pay tax.

Trade liberalization has a significant impact on the environment and social welfare of countries. In the real world, almost all industries exist upstream and downstream firms but the existing literature on the impact of trade liberalization rarely discuss the interaction between upstream and downstream firms. The goal of this study is to analyze the effects of trade liberalization on the trade policies, environmental policies and social welfare of downstream exporting countries when different pricing schemes (uniform pricing vs. discriminatory pricing) are implemented by upstream monopoly firms. By constructing a three-stage dynamic game model we found that, regardless of pricing schemes, trade liberalization leads to increase both environmental taxes and import taxes. Trade liberalization increases the social welfare of downstream countries under discriminatory pricing, while trade liberalization first reduces and then increases the social welfare of downstream countries under uniform pricing. The results indicate that the downstream countries always have the incentive to participate in trade agreements that integrate markets when discriminatory pricing schemes will be implemented by upstream firms. This finding is the most significant contribution of this paper which has not been addressed in the previous literature.

In a complex economy, production is vertical and crosses jurisdictional lines. Goods are often produced by an upstream national or global firm and improved or distributed by local firms downstream. In this context, heightened products liability may have unintended consequences on product sales and consumer safety. Conventional wisdom holds that an increase in tort liability on the upstream firm will cause that firm to (weakly) increase investment in safety or disclosure. However, this may fail in the real-world, where upstream firms operate in many jurisdictions, so that the actions of a single jurisdiction may not be significant enough to influence upstream firm behavior. Even worse, if liability is shared between upstream and downstream firms, higher upstream liability may mechanically decrease liability of the downstream distributor and encourage more reckless behavior by the downstream firm. In this manner, higher upstream liability may perversely increase the sales of a risky good. We demonstrate this phenomenon in the context of the pharmaceutical market. We show that higher products liability on upstream pharmaceutical manufacturers reduces the liability faced by downstream doctors, who respond by prescribing more drugs than before.

As the circular economy advances, green process innovation for recycling (GPIR) has become a promising pathway for emission reduction under cap-and-trade regulations. Unlike green process innovation for manufacturing (GPIM), which focuses on emission reduction during manufacturing stages, GPIR emphasizes lowering carbon emissions and production costs by improving product recycling efficiency and greenness. Given the substantial challenges of innovation, many upstream and downstream firms collaborate on emission reduction initiatives in practice. However, the interaction between upstream firms’ GPIR and downstream firms’ GPIM comes with the challenge of designing collaborative strategies. We analyze two typical cooperative strategies through a game-theoretical approach. We consider a manufacturer engages in GPIM and chooses between a non-cooperative strategy or collaborating with a supplier engaged in product recycling to conduct GPIR, either through cost-sharing or R&D joint-venture. Our main results are as follows. First, while the R&D joint-venture can, under certain conditions, enhance the overall performance of the supply chain, the manufacturer does not favor the R&D joint-venture. The supplier’s cash rebate policy can incentivize the manufacturer to choose the R&D joint-venture. Additionally, higher carbon trading price will drive them to switch from an R&D joint-venture to a cost-sharing strategy. Second, there is a complementary effect between GPIR and GPIM. As a result, the manufacturer’s higher cost-sharing rate does not necessarily prompt the supplier to lower wholesale prices. Third, the demand-enhancing effect from increased green innovation outweighs the demand-reducing effect from higher wholesale prices, allowing the manufacturer to expand sales even with high sourcing costs.

Good times, bad times, and vertical upstream integration

With rising market competition, increasing numbers of firms are launching adverting to attract customers and promote product sales. The increase in operating costs caused by advertising places greater pressure on small retail businesses that are prone to capital shortages, leading them to seek financing from upstream firms. However, in the financing process, upstream and downstream firms may not be able to acquire all of one another's real information, which inevitably has a significant impact on their operating strategies. In this paper, by constructing a Stackelberg game, we study the effects of information asymmetry on the retailer's initial capital and the manufacturer's financing rate on their advertising strategies. We find that in a capital-constrained supply chain with symmetric information, when the advertising cost coefficient is low, manufacturer advertising is the superior strategy and increases the profits of the retailer and the manufacturer, consumer surplus and social welfare; when it is moderate, retailer advertising is the superior policy; but when it is high, retailer advertising is more beneficial for the manufacturer's profit, consumer surplus and social welfare but is more unfavorable for the retailer's profit. In addition, information asymmetry on the manufacturer's financing rate affects the advertising strategies of the manufacturer and the retailer, but information asymmetry on the retailer's initial capital fails. Additionally, we further extend the model to the Nash game scenario and cooperative advertising scenario and draw some different conclusions. The findings provide new theoretical implications for the formulation of firm advertising strategies.

Emergent dynamics of a macroeconomic agent based model with capital and credit

In the ICT industry, technical standards frequently incorporate SEPs, which are high-quality and indispensable for standard implementation. These patents play a central role in enabling firms to pursue strategic litigation. This study empirically investigates the relationship between SEP ownership and patent litigation among global ICT firms, with particular attention to the moderating role of sales revenue. The findings indicate that an increase in SEP holdings significantly elevates a firm's likelihood of engaging in litigation as a plaintiff and defendant. Sales revenue positively moderates this relationship, suggesting commercial interests and competitive positioning increasingly drive litigation. Grouped regression analyses reveal that technology leaders experience a stronger positive association between SEP accumulation and litigation activity than followers. Positional asymmetries also emerge: upstream firms are more likely to initiate lawsuits, while downstream firms – particularly large-scale manufacturers – are more frequently targeted due to their structural dependence on upstream technologies. In contrast, vertically integrated firms show lower levels of litigation involvement. These results provide actionable insights for managing SEP-related legal risks in competitive markets.

Declared essential patents and average total R&D expenditures per patent family

Interaction of Drastic and Incremental Innovations: Economic Development through Schumpeterian Waves

Vertical vs. horizontal integration: Game analysis for the rare earth industrial integration in China

Abstract. I investigate the effect of exclusive territories, which are typical vertical controls imposed by upstream firms. Using shipping spatial models, I consider an industry that consists of many independent local markets. An upstream monopolist restricts competition between downstream firms using exclusive territories. I find that exclusive territories reduce the prices of final products in all local markets in quantity‐setting competition. In price‐setting competition, they raise prices in half the local markets, reduce them in other markets, and also reduce the total consumer surplus. JEL classification: L42, R32

Knowledge is a limitless resource in the knowledge-based economy; therefore, organizations should learn, store, transfer and apply knowledge to add value or gain competitive advantage (Sveiby, 1997). Knowledge management (KM) refers to identifying and leveraging the collective knowledge within the organization for competitive advantage (von Krogh, 1998). However, it is usually discussed and implemented in high-tech industries (e.g., TI, TSMC and Winbond) and the software industry (e.g., Microsoft and Oracle). In Taiwan, the upstream firms or suppliers of the electronics industry (e.g., Winbond and UMC) implement KM in their organizations. As well as the suppliers, the downstream firms or manufacturers (e.g., Quanta and ASUS) also put KM into practice. However, in the intermediaries or distributors, only a meager number of firms really implement KM in their companies. Therefore, we have neglected whether KM is still suitable to implement in the distribution industry. The IC distributors in Taiwan evolved from partnerships or intra-family enterprises into the overall arrangement in Asia, with output value in 2004 beyond $38.7 billion (United States dollars). IC distribution industry outsiders may consider that distributors just transact business, but don’t have their own products, even though the scale of IC distributors has expanded. So an inaccurate notion exists that it isn’t necessary to innovate or put KM into practice therein. In fact, IC distributors have to face not only the rapidly changing upstream firms, but also the variable requirements of downstream customers. Therefore, distributors have to adapt and learn even faster than their suppliers and customers to face the drastically changing and intensely competitive environment.

Bundling, à la carte pricing and vertical bargaining in a two-sided model

The rise of the global economy has transformed competitive and interdependent relationships in East Asian production linkage. With the development of globalization, Japanese downstream industry, such as manufacturing and especially the consumer electronics industry, is facing fierce competition from the catch-up phenomenon in South Korean, Taiwanese, and Chinese manufacturers. Many factories for Japanese consumer electronics firms have been forced to shut down. In addition, their suppliers, upstream Japanese firms like electronic component and equipment suppliers, have lost their business in the domestic Japanese market and have experienced pressure to enter global markets. With regard to the Japanese upstream industry and Taiwanese thin film transistor liquid crystal display (TFT-LCD) downstream firms, the Japanese electronic component and equipment suppliers have been integrated into the strategic production linkage in East Asian countries by way of responding to this transformation in competitive relationships in global TFT-LCD markets. Thus, they are increasingly abandoning Japanese clients to become the main electronic component and equipment suppliers for TFT-LCD manufacturers in Taiwan. In spite of the long-term recession in the Japanese economy and decay in the downstream industry, under the Japanese regulatory regime, Japanese upstream industry has thus far maintained its technological advantage in the global TFT-LCD markets and has continued to dominate the electronic component and equipment business for TFT-LCD manufacturers in Taiwan.