Vertical integration, knowledge disclosure and decreasing rival's cost
We study vertical integration incorporating the fact that it creates the possibility of knowledge disclosure. We consider a setting where, through integrating, an upstream monopolist learns its downstream partner’s innovation, and can disclose it to its downstream rival. We show that a vertically integrated firm chooses to fully disclose its knowledge to its downstream rival. Knowledge disclosure intensifies downstream competition but, at the same time, expands the downstream market size. We also show that, due to knowledge disclosure, vertical integration increases firms’ innovation incentives, consumer and total welfare, and decreases, instead of raises, the rival’s cost.
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- Catherine C. de Fontenay & Joshua S. Gans, 2004.
"Vertical Integration in the Presence of Upstream Competition,"
Department of Economics - Working Papers Series
904, The University of Melbourne.
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- Joshua Gans & Catherine de Fontenay, 2004. "Vertical Integration in the Presence of Upstream Competition," Econometric Society 2004 North American Winter Meetings 7, Econometric Society.
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"Concubinage or marriage? Informal and formal cooperations for innovation,"
International Journal of Industrial Organization,
Elsevier, vol. 23(3-4), pages 279-302, April.
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- Chrysovalantou Milliou, 2006.
"Endogenous Protection Of R&D Investments,"
Economics Working Papers
we066325, Universidad Carlos III, Departamento de Economía.
- Sacco, Dario & Schmutzler, Armin, 2011. "Is there a U-shaped relation between competition and investment?," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 65-73, January.
- Allain, Marie-Laure & Chambolle, Claire & Rey, Patrick, 2011.
"Vertical Integration, Information and Foreclosure,"
TSE Working Papers
11-237, Toulouse School of Economics (TSE), revised Nov 2011.
- Anil Arya & Brian Mittendorf, 2006. "Enhancing Vertical Efficiency Through Horizontal Licensing," Journal of Regulatory Economics, Springer, vol. 29(3), pages 333-342, 05.
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