This article studies how vertical integration and upstream R&D subsidy affect innovation and welfare in vertically separated industries. I formulate a dynamic structural model of a dominant upstream firm and oligopolistic downstream firms that invest in complementary innovations. I estimate the model using data on the System‐on‐Chip (SoC) and smartphone industries. The results suggest that a vertical merger can increase innovation and welfare, mainly driven by the investment coordination of the merged firms. I also find that subsidizing the upstream innovation increases overall private investment, innovation, and welfare.

中文翻译：

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纵向结构与创新：SoC和智能手机行业研究

本文研究了垂直整合和上游研发补贴如何影响垂直分离行业的创新和福利。我为投资互补创新的主导上游企业和寡头下游企业制定了动态结构模型。我使用片上系统（SoC）和智能手机行业的数据估算模型。结果表明，纵向合并可以增加创新和福利，这主要是受合并公司投资协调的驱动。我还发现，补贴上游创新会增加总体私人投资，创新和福利。