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Vertical Integration, Innovation and Foreclosure

Marie-Laure Allain 1, 2, Claire Chambolle 2, 3, Patrick Rey 4

(08/12/2010)

This paper studies the potential effects of vertical integration on downstream firms' incentives to innovate. Interacting efficiently with a supplier may require information exchanges, which raises the concern that sensitive information may be disclosed to rivals. This may be particularly harmful in case of innovative activities, as it increases the risk of imitation. We show that vertical integration exacerbates this threat of imitation, which de facto degrades the integrated supplier's ability to interact with unintegrated competitors. Vertical integration may thus lead to input foreclosure, thereby raising rivals' cost and limiting both upstream competition and downstream innovation. A similar concern of customer foreclosure arises in the case of downstream bottlenecks.

1 :	Centre de Recherche en Économie et Statistique (CREST)
	INSEE – École Nationale de la Statistique et de l'Administration Économique
2 :	Department of Economics, Ecole Polytechnique
	CNRS : UMR7176 – Polytechnique - X
3 :	Alimentation et sciences sociales (ALISS)
	Institut national de la recherche agronomique (INRA) : UR1303
4 :	Toulouse School of Economics (TSE)
	Toulouse School of Economics

Domaine

:

Sciences de l'Homme et Société/Gestion et management

Mots Clés : Vertical Integration – Foreclosure – Innovation – Imitation – Firewall.

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Contributeur : Department Of Economics <>

Soumis le : Mercredi 8 Décembre 2010, 11:32:10

Dernière modification le : Mercredi 8 Décembre 2010, 11:48:32