Abstract:Process innovation and product innovation are the main modes of firm’s technological innovation. R&D decisions under different modes depend on buyers’power. A three-stage R&D decision-making model is built including upstream and downstream firms to study the heterogeneity influence of buyers’power on process innovation and product innovation of upstream firms. The results show that the stronger the buyers’ power, the less the investment intensity of process innovation and the more the product innovation intensity of the upstream firms. The market power of sellers is positively correlated with product innovation in their industry,while the relation with process innovation is uncertain. Buyers’technological capabilities have a positive impact on product innovation through inter-industry transmission mechanism and have a negative impact on process innovation. The large and middle-sized enterprises in Chinese manufacturing industry are tested empirically. Consistent with the theoretical hypotheses, the parameter estimation of interaction term shows that the effect of buyers’power on the upstream enterprise innovation input depends on the seller’s market power.