Could Vertical Integration Increase Innovation?

Chenyu Yang
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Chenyu Yang: University of Rochester

No 908, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies the effects of vertical integration on innovation in the chipset and smartphone industries. I formulate and estimate a dynamic structural model of the upstream chipset maker Qualcomm and downstream smartphone handset makers. The two sides make dynamic investment decisions and negotiate chipset prices via Nash bargaining. Using the estimates, I simulate market outcomes should Qualcomm merge with a downstream handset maker. I find that the vertical merger would increase innovation rates and social welfare, driven primarily by the investment coordination of the two merged firms.

Date: 2017
New Economics Papers: this item is included in nep-com, nep-gth, nep-ino and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:908

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