Vertical Integration and Disruptive Cross-Market R&D
Tianle Zhang () and
MPRA Paper from University Library of Munich, Germany
We study incentives for innovations that enable firms to enter backward into the input market. Such innovations are disruptive in that they lead to structural changes and even reversal of supply-customer relationships. We first show that Arrow's replacement effect is also present in our vertical setting which gives rise to two general results: (1) vertical integration lowers the R&D incentive of the integrated downstream firm; and (2) vertical integration raises the R&D incentive of the non-integrated downstream firm. We then identify, respectively, situations for strategic integration, which is driven by the motive to preempt R&D of the target firm, and for strategic separation, which occurs as a means to not trigger R&D by the downstream rival. An otherwise profitable raising rival's cost strategy may not be chosen for fear of counterattack by the rival in the form of disruptive R&D.
Keywords: innovation; structural change; replacement effect. (search for similar items in EconPapers)
JEL-codes: L13 L42 O31 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/95435/1/MPRA_paper_95435.pdf original version (application/pdf)
Journal Article: Vertical integration and disruptive cross‐market R&D (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:95435
Access Statistics for this paper
More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().