Coordinating RD efforts for quality improvement along a supply chain

摘要

The optimal design of two-part tariffs is investigated in a dynamic model where two firms belonging to the same supply chain invest in R&D activities to increase the quality of the final product. It is shown that the replication of the vertically integrated monopolist'sudperformance can be attained using a TPT in which the fee is a linear function of either the upstream R&D effort or product quality itself.udThe possibility of relying on R&D figures appearing in the upstreamudfirm's balance sheet is desirable as quality enhancement might not beudobservable or verifiable.