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.
|Publication status||Published - 12 Jun 2011|
|Event||2011 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 2011 → 12 Jun 2011
|Conference||2011 International Conference on Industrial Economics : 2011年浙江大学产业经济学国际会议|
|Period||11/06/11 → 12/06/11|