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Vertical structure and innovation: A study of the SoC and smartphone industries

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  • Chenyu Yang

Abstract

This article studies how vertical integration and upstream R&D subsidy affect innovation and welfare in vertically separated industries. I formulate a dynamic structural model of a dominant upstream firm and oligopolistic downstream firms that invest in complementary innovations. I estimate the model using data on the System‐on‐Chip (SoC) and smartphone industries. The results suggest that a vertical merger can increase innovation and welfare, mainly driven by the investment coordination of the merged firms. I also find that subsidizing the upstream innovation increases overall private investment, innovation, and welfare.

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  • Chenyu Yang, 2020. "Vertical structure and innovation: A study of the SoC and smartphone industries," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 739-785, September.
    • Handle: RePEc:bla:randje:v:51:y:2020:i:3:p:739-785
    DOI: 10.1111/1756-2171.12339
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    Cited by:

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    2. Rachel Griffith & John Van Reenen, 2021. "Product market competition, creative destruction and innovation," IFS Working Papers W21/43, Institute for Fiscal Studies.
    3. repec:hal:wpaper:hal-03375907 is not listed on IDEAS
    4. Huang, Chien-Yu & Yang, Yibai & Zheng, Zhijie, 2018. "Monetary Policy in a Schumpeterian Growth Model with Two R&D Sectors," MPRA Paper 87462, University Library of Munich, Germany.
    5. Joachim Freyberger & Bradley J. Larsen, 2022. "Identification in ascending auctions, with an application to digital rights management," Quantitative Economics, Econometric Society, vol. 13(2), pages 505-543, May.
    6. Vatsala Shreeti, 2024. "Tracing the adoption of digital technologies," BIS Working Papers 1166, Bank for International Settlements.
    7. Yue Liu & Rong Luo, 2023. "Network Effects and Multinetwork Sellers’ Dynamic Pricing in the U.S. Smartphone Market," Management Science, INFORMS, vol. 69(6), pages 3297-3318, June.
    8. Xing Gao & Xifan Wang & Weijun Zhong & Ying Wang, 2023. "R&D subsidy and output subsidy in a duopoly: The role of technology spillover and R&D budget," Australian Economic Papers, Wiley Blackwell, vol. 62(3), pages 524-538, September.

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