Risky Business - Uncertain Access to Specialized Complementary Assets, Vertical Integration, and the Commercial Performance of New Products

Venkat Kuppuswamy (University of North Carolina at Chapel Hill)

Abstract: The present study explores the antecedents and consequences of vertical integration choices in the context of new product development using project-level data from the motion picture industry. I show that uncertain access to specialized complementary assets can generate market failures for high-cost projects, which drive the owners of these assets to vertically integrate into upstream innovation. Furthermore, I explore whether vertical integration affects downstream investments in specialized complementary resources and ultimately, the commercial performance of new products. I find that vertical integration promotes greater commercial success and that this effect is completely mediated by enhanced downstream investments.

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