Vertical Integration and Reverse Engineering of Agricultural Enterprises

This paper studies the potential effects of agricultural enterprise’s vertical integration and reverse engineering on downstream firms. Suppliers who invest reverse engineering technology can exploit customer’s information. An integrated supplier can obtain at no cost the information from its subsidiary. Based on repeated game and considered corporate "good" or "bad" type, this paper analysis supplier’s selection and downstream investment in innovation. The results showed that: when the cost is higher than the threshold value no company invest in reverse engineering, when the cost is lower than the threshold value the integration company invest in reverse engineering; in the second period, vertical integration reduce the downstream independent enterprise’s innovation investment and profits, integrated enterprise increase innovation investment and profits; during the first period of the game, the independent downstream firms being “completely foreclosureâ€.