Product Innovation in Vertically Related Industries

Ping LIN, Wen ZHOU

Research output: Other Conference ContributionsPresentation


We compare a downstream firm's incentive to invent a new input under vertical separation and vertical integration. Similar to the replacement effect in horizontal settings, innovation by a vertically integrated firm replaces its current upstream business. Innovation by a vertically separate firm leads to dramatic changes to the vertical market structure: It generates an integration effect as well as a relationship-reversal effect when the innovating firm's downstream rival is integrated. Unlike the case of horizontal mergers, unambiguous results are obtained on the effect of vertical mergers. In particular, we show that vertically integration always reduces the merging firm’s R&D incentive, but enhances the R&D incentive of non-integrating firm.
Original languageEnglish
Publication statusPublished - 12 Jun 2011
Event2011 International Conference on Industrial Economics : 2011年浙江大学产业经济学国际会议 - 金溪山庄2号会议厅, 杭州, China
Duration: 11 Jun 201112 Jun 2011


Conference2011 International Conference on Industrial Economics : 2011年浙江大学产业经济学国际会议


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