Organizational Structure and Technological Investment

Open Access       

Authors: Inés Macho-Stadler, Noriaki Matsushima and Ryusuke Shinohara

The Journal of Industrial Economics, Vol. 69, No 4, 785 – 816, December, 2021

We analyze firms’ decisions on their vertical organization, taking into account the characteristics of both the final good competition and the R&D process. We consider two vertical chains where upstream sectors invest in R&D. Such investment determines the production costs of the downstream sector and has spillovers on the production and the investment costs of the rival. In a general setting, we show that the equilibrium organizational structure depends on whether the situation considered belongs to one of four possible cases. We study how final good market competition, R&D spillover, and R&D incentives interact to determine the equilibrium vertical structure.

This paper originally appeared as Barcelona School of Economics Working Paper 1243