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Vertical Integration and Differentiation in an Oligopoly with Process Innovating R&D

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  • L. Lambertini
  • G. Rossini

Abstract

The paper contains first the analysis of the strategic decision as to whether to integrate or not, in a market with differenciation of final products feeding back into the production of intermediate inputs. Cournot competition makes integration a dominant strategy, althogh it is not Pareto optimal for the industry when goods are close substitutes.Bertrand competition leaves room also for non integration and there remains the possibility of asymmetric industry organization, with non integrated firms competing with integrated rivals.The analysisis extended to an oligopoly where upstream process R&D takes place. Here, the nonintegrated part of industry may invest more in process R&D and even perform better than its integrated counterart.

Suggested Citation

  • L. Lambertini & G. Rossini, 2003. "Vertical Integration and Differentiation in an Oligopoly with Process Innovating R&D," Working Papers 468, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:468
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    References listed on IDEAS

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    6. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
    7. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255, Elsevier.
    8. Brocas, Isabelle, 2003. "Vertical integration and incentives to innovate," International Journal of Industrial Organization, Elsevier, vol. 21(4), pages 457-488, April.
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    10. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 85-120.
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    Cited by:

    1. G. Rossini & L. Lambertini, 2003. "Endogeneous outsourcing and vertical integration with process R&D," Working Papers 487, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. G. Rossini, 2004. "Vertical integration in a stochastic framework and a nonsymmetric bargaining equilibrium," Working Papers 527, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Luca Lambertini & Gianpaolo Rossini, 2008. "Is Vertical Disintegration Preferable To Integration When There Is Process R&D?," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 17(5), pages 401-416.
    4. Bouguezzi, Fehmi & EL ELJ, Moez, 2009. "Vertical Integration and Patent Licensing in Upstream and Downstream Markets," MPRA Paper 22212, University Library of Munich, Germany.
    5. G. Rossini, 2005. "Pitfalls in private and social incentives of vertical crossborder outsourcing," Working Papers 536, Dipartimento Scienze Economiche, Universita' di Bologna.
    6. Rossini, Gianpaolo, 2005. "Outsourcing with labor management," Economic Systems, Elsevier, vol. 29(4), pages 455-466, December.
    7. G. Rossini, 2003. "Private incentives to vertical disintegration among firms with heterogeneous objectives," Working Papers 476, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Zouhaier M'Chirgui & Walid Hichri, 2006. "Horizontal merger in bilaterally duopolistic industries with differentiated products," Applied Economics Letters, Taylor & Francis Journals, vol. 13(2), pages 93-95.
    9. Arijit Mukherjee & Achintya Ray, 2007. "Strategic Outsourcing And R&D In A Vertical Structure," Manchester School, University of Manchester, vol. 75(3), pages 297-310, June.
    10. Gianpaolo Rossini, 2008. "Competition and bargaining in vertical relationships with market uncertainty," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 55(3), pages 229-242, September.

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