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Vertical integration and product innovation

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Author Info
Arijit Mukherjee2 ()
Piercarlo Zanchettin ()

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Abstract

We study vertical integration and product innovation (in the form of horizontal product differentiation) as interdependent strategic choices of vertically related firms. We consider product innovation in the downstream market as a strategic decision of innovative firms facing a threat of vertical integration and market foreclosure by an upstream monopolist. Our main finding is that, although product differentiation allows to soften product market competition and to avoid market foreclosure, the downstream market may prefer less product differentiation to deter vertical integration. Therefore, less product innovation can be a possible social cost of a lenient antitrust policy.

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File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp07-12.pdf
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Publisher Info
Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 07/12.

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Date of creation: Oct 2007
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Handle: RePEc:lec:leecon:07/12

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Related research
Keywords: Vertical Integration; product innovation; market foreclosure; duopoly;

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Yongmin Chen, 2000. "On Vertical Mergers and Their Competitive Effects," Econometric Society World Congress 2000 Contributed Papers 0383, Econometric Society. [Downloadable!]
    Other versions:
  2. Paul Belleflamme & Eric Toulemonde, 2003. "Product differentiation in successive vertical oligopolies," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 523-545, August. [Downloadable!] (restricted)
    Other versions:
  3. Stefan Buehler & Armin Schmutzler, 2004. "Intimidating Competitors – Endogenous Vertical Integration and Downstream Investment in Successive Oligopoly," Working Papers 0409, University of Zurich, Socioeconomic Institute, revised Jul 2005. [Downloadable!]
    Other versions:
  4. Yongmin Chen & Michael H. Riordan, 2003. "Vertical Integration, Exclusive Dealing, and Ex Post Cartelization," Discussion Papers 0203-13, Columbia University, Department of Economics. [Downloadable!]
  5. Lynne Pepall & George Norman, 2001. "Product Differentiation and Upstream-Downstream Relations," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 10(2), pages 201-233, 06. [Downloadable!] (restricted)
    Other versions:
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