R&D-competition between vertical corporate networks: market structure and strategic R&D-spillovers

The strategical role of R&D-spillovers within vertical corporate networks (intra-group R&D-spillovers) are neglected in the innovation theory of Industrial Organization. Against this background we formalize in a two-industry model the effects of R&D-competitions between two exclusive vertical corporate networks on market structures, technological opportunities and the development time of new products. It can be shown that higher efficiency of organizing corporate networks increases the group size and raises the level of supplier´s innovative activities. We found that intra-group R&D-spillovers stimulate the competition between upstream-firms and increase the probability of the core downstream-firms to win the R&D-competition. This can explain the observed differences of firm´s technological opportunities on the upstream-market. Finally we discuss the importance of university-based R&D-spillovers to improve the capacities of the network members to absorb intra-group R&D-spillovers