We study the decision of firms between vertical integration and outsourcing in a dynamic setting with product innovation. In so doing, we model an industry in which R&D is performed by independent research labs and outsourcing production requires complementary upstream and downstream inventions. In the presence of search friction and incomplete outsourcing contracts, we show that the ex-post bargaining power of upstream and downstream parties at the production stage feeds back to R&D incentives, thus affecting the emergence and the performance of labs specialized in complementary inventions.

Outsourcing, Contracts, and Innovation Networks

NAGHAVI, ALIREZA JAY;OTTAVIANO, GIANMARCO IREO PAOLO
2008

Abstract

We study the decision of firms between vertical integration and outsourcing in a dynamic setting with product innovation. In so doing, we model an industry in which R&D is performed by independent research labs and outsourcing production requires complementary upstream and downstream inventions. In the presence of search friction and incomplete outsourcing contracts, we show that the ex-post bargaining power of upstream and downstream parties at the production stage feeds back to R&D incentives, thus affecting the emergence and the performance of labs specialized in complementary inventions.
Foreign Direct Investment and the Multinational
67
87
A. Naghavi; G. Ottaviano
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11585/82645
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