Vertical Integration, Innovation and Foreclosure
This paper studies the potential effects of vertical integration on downstream firms' incentives to innovate. Interacting efficiently with a supplier may require information exchanges, which raises the concern that sensitive information may be disclosed to rivals. This may be particularly harmful in case of innovative activities, as it increases the risk of imitation. We show that vertical integration exacerbates this threat of imitation, which de facto degrades the integrated supplier's ability to interact with unintegrated competitors. Vertical integration may thus lead to input foreclosure, thereby raising rivals' cost and limiting both upstream competition and downstream innovation. A similar concern of customer foreclosure arises in the case of downstream bottlenecks.
(This abstract was borrowed from another version of this item.)
|Date of creation:||Mar 2011|
|Date of revision:|
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- Gérard Gaudet & Ngo Van Long, 1995.
"Vertical Integration, Foreclosure and Profits in the Presence of Double Marginalisation,"
CIRANO Working Papers
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"Patents vs Trade Secrets: Knowledge Licensing and Spillover,"
w0064, Center for Economic and Financial Research (CEFIR), revised Feb 2006.
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