Product Innovation in Vertically Related Industries

Ping LIN, Wen ZHOU

Research output: Other Conference ContributionsPresentationPresentation

Abstract

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

Conference

Conference2011 International Conference on Industrial Economics : 2011年浙江大学产业经济学国际会议
CountryChina
City杭州
Period11/06/1112/06/11

Fingerprint

Product innovation
Industry
Incentives
Innovation
Integrated
Vertical integration
Reversal
Vertical merger
Merging
Replacement
Market structure
Vertical separation
Horizontal mergers

Cite this

LIN, P., & ZHOU, W. (2011). Product Innovation in Vertically Related Industries. 2011 International Conference on Industrial Economics : 2011年浙江大学产业经济学国际会议, 杭州, China.
LIN, Ping ; ZHOU, Wen. / Product Innovation in Vertically Related Industries. 2011 International Conference on Industrial Economics : 2011年浙江大学产业经济学国际会议, 杭州, China.
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note = "2011 International Conference on Industrial Economics : 2011年浙江大学产业经济学国际会议 ; Conference date: 11-06-2011 Through 12-06-2011",

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LIN, P & ZHOU, W 2011, 'Product Innovation in Vertically Related Industries' 2011 International Conference on Industrial Economics : 2011年浙江大学产业经济学国际会议, 杭州, China, 11/06/11 - 12/06/11, .

Product Innovation in Vertically Related Industries. / LIN, Ping; ZHOU, Wen.

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

Research output: Other Conference ContributionsPresentationPresentation

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AU - ZHOU, Wen

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N2 - 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.

AB - 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.

M3 - Presentation

ER -

LIN P, ZHOU W. Product Innovation in Vertically Related Industries. 2011. 2011 International Conference on Industrial Economics : 2011年浙江大学产业经济学国际会议, 杭州, China.