Research On The R&D Cost Sharing Mechanism Along The Supply Chain

With the increasingly fierce market competition and product life cycle being shorter, complex and volatile market environment prompts the suppliers and manufacturers in the supply chain to pay more attention to R&D. However, the upstream and downstream firms who conduct R&D activities are often faced with the resources limitations of their own, technology uncertainty and the spillover effect of R&D outcomes, which severely weakened the initiative for firms in the supply chain to launch R&D activities. In addition, R&D capability between the upstream and downstream firms is often asymmetry. Thus, when one firm carries out cost-saving or quality-improving R&D activities, other firms in the supply chain can pay for a fraction of the R&D costs and share R&D income at the same time. This model of R&D cost sharing plays a very important role in enhancing the R&D performance of the entire supply chain.The previous studies only demonstrated the necessary and importance of the R&D cost sharing mechanism along the supply chain, but didn’t investigate the interaction of the firms’ decisions. Based on a two-tier supply chain structure that includes one upstream supplier and one downstream manufacturer, we make a in-depth research about the optimal cost-sharing ratio which the downstream manufacturer chooses when this manufacturer joins the R&D investment of the upstream supplier and at which stability condition the optimal R&D cost sharing mechanism along the supply chain can be achieved. In the meantime, this paper assumes that the firm which engages in R&D activities can independently choose their R&D level and we also consider non-economy of scale in the R&D activities, therefore the conclusions of this paper are more practical.Based on this idea, we first discuss the meaning of R&D cost-sharing mechanism along the supply chain and analyze the conditions under which R&D cost-sharing mechanism can be chose as a form of R&D cooperation between the upstream and downstream firms. Then the R&D cost sharing mode has been classified as cost-saving mode and quality-improving mode from the view of R&D effect.On this basis, this paper makes a comparison between independent decision-making cost-sharing mechanism with joint decision-making cost-sharing mechanism and obtains the optimal level of cost sharing mechanism. This paper also finds out the stability conditions of the joint decision-making cost-sharing mechanism between upstream and downstream firms and how R&D costs sharing mechanism influences the social welfare. Finally we adopt the method of numerical simulation analysis to verify the conclusions of this paper. The purpose of our study is to provide some practical policy recommendations for joint R&D investment between the upstream and downstream firms in the real economic activities and to ensure effective implementation of R&D cost sharing mechanism along the supply chain.