The Effect of Vertical Integration on the Downstream Corporation's Innovation Incentive

This paper mainly studies how the manufacture has enlarged the differentiation of products by innovation in order to deal with the potential threat caused by the vertical integration and market foreclosure in the economics system which consists of the upstream monopolistic corporations and two downstream ones.It has been proved by all the findings that,confronting the threat of vertical integration and market foreclosure,corporations are motivated to take two actions: eliminate market foreclosure with RD investment and try to obtain more profit by forcing the integration firms to reduce the input price.On the other hand,the different and new products achieved from RD investment will also influence the possibility for vertical integration to take place.