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Is Vertical Disintegration Preferable To Integration When There Is Process R&D?

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  • Luca Lambertini
  • Gianpaolo Rossini

Abstract

Vertical integration (VI) may show social superiority over vertical disintegration (VD) if there is an opportunity of internalizing most of the externalities affecting vertical arm's length relationships. When enterprises carry out process innovating R&D (PIRD), VI turns out to be quite often privately and socially superior to VD. However, there are circumstances where VI does not provide the same incentive to carry out PIRD. VD pushes further PIRD displaying instances of private superiority and even some spells of social desirability. If PIRD costs are asymmetric along the vertical chain of production, fresh advantages of VD may appear. In this sense, the paper may supply an additional interpretation of the recent wave of domestic and cross-border VD.

Suggested Citation

  • Luca Lambertini & Gianpaolo Rossini, 2008. "Is Vertical Disintegration Preferable To Integration When There Is Process R&D?," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 17(5), pages 401-416.
    • Handle: RePEc:taf:ecinnt:v:17:y:2008:i:5:p:401-416
    DOI: 10.1080/10438590701325590
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    References listed on IDEAS

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    1. Luca Lambertini & Gianpaolo Rossini, 2009. "The Gains From Cooperative R&D With A Concave Technology And Spillovers," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 77-85.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    3. L. Lambertini & G. Rossini, 2003. "Vertical Integration and Differentiation in an Oligopoly with Process Innovating R&D," Working Papers 468, Dipartimento Scienze Economiche, Universita' di Bologna.
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    Cited by:

    1. Cátia Pinheiro & Paula Sarmento, 2013. "R&D offshore insourcing in Portugal: drivers and motivations," FEP Working Papers 501, Universidade do Porto, Faculdade de Economia do Porto.
    2. Karantininis, Kostas & Sauer, Johannes & Furtan, William Hartley, 2010. "Innovation and integration in the agri-food industry," Food Policy, Elsevier, vol. 35(2), pages 112-120, April.

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