2007•Leicester Research Archive (University of Leicester)Open access
Vertical integration and product innovation
Arijit Mukherjee, Piercarlo Zanchettin
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Abstract
We study vertical integration and product innovation (in the form of horizontal product\ndifferentiation) as interdependent strategic choices of vertically related firms. We consider\nproduct innovation in the downstream market as a strategic decision of innovative firms\nfacing a threat of vertical integration and market foreclosure by an upstream monopolist.\nOur main finding is that, although product differentiation allows to soften product market\ncompetition and to avoid market foreclosure, the downstream market may prefer less\nproduct differentiation to deter vertical integration. Therefore, less product innovation\ncan be a possible social cost of a lenient antitrust policy.
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