Monday, July 5, 2010
Posted by D. Daniel Sokol
Yongmin Chen, University of Colorado at Boulder - Department of Economics and David E.M. Sappington, University of Florida - Warrington College of Business Administration - Department of Economics, write on Innovation in Vertically Related Markets.
ABSTRACT: We examine the impact of vertical industry structure on upstream process innovation. We find that vertical integration (VI) generally enhances innovation under downstream Cournot competition, but can diminish innovation under downstream Bertrand competition. We also find that under Bertrand competition, VI can increase innovation when the direct incentives for innovation are limited, but can reduce innovation when the direct incentives are pronounced.