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Vertical integration and disruptive cross‐market R&D

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  • Ping Lin
  • Tianle Zhang
  • Wen Zhou

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.

Suggested Citation

  • Ping Lin & Tianle Zhang & Wen Zhou, 2020. "Vertical integration and disruptive cross‐market R&D," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(1), pages 51-73, January.
    • Handle: RePEc:bla:jemstr:v:29:y:2020:i:1:p:51-73
    DOI: 10.1111/jems.12328
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    Cited by:

    1. Philippe Choné & Laurent Linnemer & Thibaud Vergé, 2021. "Double Marginalization and Vertical Integration," CESifo Working Paper Series 8971, CESifo.

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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