The Optimal Share of Incremental Profit of Firms along the Global Value Chains

In this document, we have developed a theoretical model to analyze the optimal share of incremental profit in sequential production along the global value chains. We leave the organizational structure decision of firms aside, and consider the hypothetical case in which the firm could freely choose the share of incremental profit from the continuum of values in sequential productions. We find that the optimal the share of incremental profit at each stage along GVCs depends on the demand elasticity faced by consumers and the degree of substitution between intermediate inputs in sequential productions.