Chrysovalantou Milliou

Vertical integration and R&D information flow: is there a need for 'firewalls'?

Abstract We examine the impact of R&D information flow on innovation incentives and welfare. In particular, we consider the case in which the information flows from a downstream nonintegrated firm to the downstream division of a vertically integrated firm via its upstream subsidiary. In a setting where both the integrated and nonintegrated firm engage in cost-reducing R&D and compete in the product market, we show that the impact of the R&D information flow on innovation, output, and profits is positive for the integrated firm, and negative for the nonintegrated firm. Unless information spillovers are high, goods are close substitutes, and R&D is very costly, ‘firewalls’ decrease welfare.

Upstream Mergers, Downstream Competition, and R&D Investments

In this paper, we provide an explanation for why upstream firms merge, highlighting the role of R&D investments and their nature, as well as the role of downstream competition. We show that an upstream merger generates two distinct efficiency gains when downstream competition is not too strong and R&D investments are sufficiently generic: The merger increases R&D investments and decreases wholesale prices. We also show that upstream firms merge unless R&D investments are too specific and downstream competition is neither too weak nor too strong. When the merger materializes, the merger-generated efficiencies pass on to consumers, and thus, consumers can be better off.

Location for Foreign Direct Investment in Vertically Related Markets

This paper studies a multinational enterprises (MNEs) location decision in a vertically related market with endogenous vertical technology transfer (VTT). We show that, even though VTT is more costly in a less developed country, an MNE can transfer more technology there than in a developed country (DC). When the opposite occurs, the MNE sometimes locates in a DC where, although it faces stronger competition, it obtains the input at better terms. Therefore, by arguing that the MNEs decision can be crucially affected by the upstream markets outcomes, an alternative explanation is provided for the commonly observed foreign direct investment (FDI) in DCs.