On the competitive effects of vertical integration by a research laboratory |
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| Institution: | 1. University of Gothenburg, Department of Business Administration, School of Business, Economics and Law at University of Gothenburg, Box 610, SE-405 30 Gothenburg, Sweden;2. Vrije Universiteit Brussel, Mobility, Logistics and Automotive Technology Research Centre, Pleinlaan 2, 1050 Brussels, Belgium;3. University of Westminster Transport Studies Group, 35 Marylebone Road, London NW1 5LS, UK;1. Graduate School of Economics, Kobe University, Japan;2. Faculty of Economics, Oita University, Japan |
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| Abstract: | An independent research laboratory owns a patented process innovation ready to be used by an industry that produces differentiated goods. We analyze whether the laboratory prefers to license the innovation as an external patentee or to merge with one of the firms in the industry, licensing the innovation as an internal patentee. Under linear demand and Cournot competition, we show first, that the vertical merger is profitable only in the case of small innovations, whereas a merger increases welfare only for significant innovations; second, all profitable vertical mergers reduce welfare. However, some profitable mergers are welfare improving under price competition. |
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