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INNOVATION IN VERTICALLY RELATED MARKETS

Authors


  • *We are grateful to the Editor, two anonymous referees, and participants at the 2008 International Industrial Organization Conference for very helpful comments. We thank Liangliang Jiang and Mircea Marcu for excellent research assistance.

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.

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