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Vertical integration and product innovation

By Arijit Mukherjee and Piercarlo Zanchettin

Abstract

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

Topics: Vertical Integration, product innovation, market foreclosure, duopoly
Publisher: Dept. of Economics, University of Leicester
Year: 2007
OAI identifier: oai:lra.le.ac.uk:2381/7469

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