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Integration and Competition for Innovations in Science-Based Industries

Author

Listed:
  • Tapas Kundu

    (Oslo Business School, Oslo Akershus University College of Applied Sciences, School of Business and Economics, UiT the Arctic University of Norway)

  • Seongwuk Moon

    (Sogang University Graduate School of Management of Technology)

Abstract

We develop a model to understand how competition for innovation affects the organization of research activity and property-rights allocation in science-based industries. We consider a vertical production process with a division of labour between research and commercialization. We analyze firms’ incentive for integration in the presence of upstream competition for innovation. Integration adversely affects an integrated firm’s R&D investment and creates positive externality for the independent firms. For a sufficiently strong externality, a semiintegrated structure appears in equilibrium. The model can thus explain the coexistence of integrated and independent research firms and conforms to the evidence of R&D competition in science-based industries. Interestingly, a non-integrated arrangement can sometime appear in equilibrium even though a semi-integrated arrangement has higher innovation probability and aggregate industry payoff. This is because those who gain from integration cannot commit to compensate the losing parties at the contracting stage. We analyze the effects of resource constraints and inter-customer licensing on the industry structure and their implications for the competition for innovation.

Suggested Citation

  • Tapas Kundu & Seongwuk Moon, 2017. "Integration and Competition for Innovations in Science-Based Industries," Working Papers 201706, Oslo Metropolitan University, Oslo Business School.
    • Handle: RePEc:oml:wpaper:201706
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    File URL: http://hdl.handle.net/20.500.12199/1334
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    More about this item

    Keywords

    R&D contest; Innovation; Vertical integration; Science-based Industry.;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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