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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RAND Journal of Economics,
The RAND Corporation, vol. 36(3), pages 544-572, Autumn.
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"Concubinage or Marriage? Informal and Formal Cooperations for Innovation,"
ZEW Discussion Papers
04-11, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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"Endogenous Protection Of R&D Investments,"
Economics Working Papers
we066325, Universidad Carlos III, Departamento de Economía.
- 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.
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