Vertical integration smooths innovation diffusion

Luigi Filippini, Cecilia Vergari

Risultato della ricerca: Contributo in rivistaArticolo in rivistapeer review

3 Citazioni (Scopus)

Abstract

Does vertical integration of an input innovator with a downstream firm entail innovation foreclosure? We study the licensing incentives of an independent input producer owning a patented product innovation which allows the downstream firms to improve the quality of their final goods. We consider two-part tariff contracts for both outside and incumbent innovators. We find that the incumbent innovator has always the incentive to license its innovation to the rival firm so that under vertical integration complete technology diffusion takes place. In contrast, the external patent holder may prefer exclusive licensing depending on the innovation size as well as on the set of allowed contracts. As a result vertical integration does not entail innovation foreclosure, rather it facilitates innovation diffusion with respect to vertical separation. As for the profitability, the vertical integration with either downstream firm is always privately profitable and it is welfare improving for large innovations: this implies that not all profitable mergers should be rejected.
Lingua originaleEnglish
pagine (da-a)1-22
Numero di pagine22
RivistaTHE B.E. JOURNAL OF ECONOMIC ANALYSIS & POLICY
Volume2017
Stato di pubblicazionePubblicato - 2017

Keywords

  • Integration, Vertical differentiation, licensing
  • Integrazione verticale,qualità, licenze

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