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Endogeneous outsourcing and vertical integration with process R&D

Listed author(s):
  • G. Rossini
  • L. Lambertini

According to received literature, vertical integration may enjoy a social superiority due to the ability to internalize the externality that goes back from the pricing policy of the downstream firm to the profits of the upstream firm. We challenge this result introducing process R&D in a broad set of scenarios with vertically symmetric and asymmetric R&D commitments. In some of these contexts a reversed sequence of socially desirable vertical arrangements arises, making outsourcing superior. In other circumstances disintegration is privately superior but socially inefficient. Finally, vertically asymmetric costs of R&D are considered to allow for a wider range of applications.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number 487.

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Date of creation: 2003
Handle: RePEc:bol:bodewp:487
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  1. Slade, Margaret E, 1998. "Beer and the Tie: Did Divestiture of Brewer-Owned Public Houses Lead to Higher Beer Prices?," Economic Journal, Royal Economic Society, vol. 108(448), pages 565-602, May.
  2. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
  3. d'Aspremont, Claude & Jacquemin, Alexis, 1990. "Cooperative and Noncooperative R&D in Duopoly with Spillovers: Erratum," American Economic Review, American Economic Association, vol. 80(3), pages 641-642, June.
  4. 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.
  5. McLaren, John, 1999. "Supplier relations and the market context: A theory of handshakes," Journal of International Economics, Elsevier, vol. 48(1), pages 121-138, June.
  6. Lynne Pepall & George Norman, 2001. "Product Differentiation and Upstream-Downstream Relations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(2), pages 201-233, 06.
  7. G. Rossini, 2003. "Private incentives to vertical disintegration among firms with heterogeneous objectives," Working Papers 476, Dipartimento Scienze Economiche, Universita' di Bologna.
  8. repec:ubc:bricol:93-12 is not listed on IDEAS
  9. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  10. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347-347.
  11. Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, vol. 61(2), pages 112-123, May.
  12. Barbara J. Spencer & Ronald W. Jones, 1991. "Vertical Foreclosure and International Trade Policy," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 153-170.
  13. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 85-120.
  14. Jansen, Jos, 2003. "Coexistence of strategic vertical separation and integration," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 699-716, May.
  15. Armour, Henry Ogden & Teece, David J, 1980. "Vertical Integration and Technological Innovation," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 470-474, August.
  16. 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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