Vertical integration and disruptive cross‐market R&D

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

Abstract

We study how vertical market structure affects the incentives of suppliers and customers to develop a new input that will enable the innovator to replace the incumbent supplier. In a vertical setting with an incumbent monopoly upstream supplier and two downstream firms, we show that vertical integration reduces the R&D incentives of the integrated parties, but increases that of the nonintegrated downstream rival. Strategic vertical integration may occur whereby the upstream incumbent integrates with a downstream firm to discourage or even preempt downstream disruptive R&D. Depending on the R&D costs, vertical integration may lower the social rate of innovation.
Original languageEnglish
Number of pages23
JournalJournal of Economics and Management Strategy
Early online date9 Aug 2019
DOIs
Publication statusE-pub ahead of print - 9 Aug 2019

Fingerprint

Innovation
Costs
Vertical integration
Incumbents
Suppliers
Incentives
Integrated
Innovators
Market structure
Monopoly

Keywords

  • innovation
  • replacement effect
  • structural change
  • vertical integration

Cite this

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Vertical integration and disruptive cross‐market R&D. / LIN, Ping; ZHANG, Tianle; ZHOU, Wen.

In: Journal of Economics and Management Strategy, 09.08.2019.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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