In this research, downstream companies decide whether to set prices or quantities when buying from upstream firms that invest in R&D. The study reveals that when the upstream company sets a specific price for each buyer, the downstream companies prefer competing on price when their products are more distinct. Interestingly, competing on price is better for the companies' efficiency compared to quantity competition in certain situations, leading to a dilemma for the firms when competing on quantity. However, when the downstream firms negotiate directly with the upstream firm for pricing contracts, they are better off choosing price-based contracts. Importantly, the overall social welfare remains the same regardless of whether downstream companies compete on price or quantity.