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

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 certain products, 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.

Keywords: Vertical Integration, Complementary Assets, New Product Development, Performance

JEL Classification: L22, O32