Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/71568 
Year of Publication: 
2006
Series/Report no.: 
IFS Working Papers No. 06/12
Publisher: 
Institute for Fiscal Studies (IFS), London
Abstract: 
This paper considers how competition can affect aggregate innovative activity through its effects on firms’ decision whether or not to vertically integrate. A moderate increase in competition enhances innovation incentives, too much competition discourages innovative effort. These effects generates an inverted-U relationship between competition and innovation and between competition and the incentive to vertically integrate. Preliminary evidence finds that there is a non-linear relationship between competition and the propensity of firms to vertically integrate. These results seem to be more consistent with the Property Right Theory (PRT) of vertical integration than with the Transaction Cost Economics (TCE) approach.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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