In-house or Outsourcing R&D? Manufacturer Technology Strategy in the Presence of Market Follower Encroachment

Facing the threat of market follower encroachment, this paper constructs game theoretical models based on different channel structures and market structures, investigates following manufacturer’s encroachment strategy and technology strategies, and discusses the impact of following manufacturer’s strategy on quality decisions. The results show that encroachment always improves consumer surplus by slashing prices when leading manufacturer adopts in-house RD otherwise, it results in lower consumer surplus with mild competition if leading manufacturer is at a technological disadvantage. Furthermore, the technology strategies of following manufacturer are related to their RD meanwhile, the following manufacturer adopting ORD is always beneficial to quality improvement.