Vertical integration and product innovation

Arijit Mukherjee2 () and Piercarlo Zanchettin

No 07/12, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: We study vertical integration and product innovation (in the form of horizontal product differentiation) as interdependent strategic choices of vertically related firms. We consider product innovation in the downstream market as a strategic decision of innovative firms facing a threat of vertical integration and market foreclosure by an upstream monopolist. Our main finding is that, although product differentiation allows to soften product market competition and to avoid market foreclosure, the downstream market may prefer less product differentiation to deter vertical integration. Therefore, less product innovation can be a possible social cost of a lenient antitrust policy.

Keywords: Vertical Integration; product innovation; market foreclosure; duopoly (search for similar items in EconPapers)
JEL-codes: D43 L13 O31 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-bec, nep-com, nep-ino, nep-mic and nep-tid
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