Innovation Through Vertical Relations Between Firms, Suppliers And Customers: A Study Of German Firms

Abstract

The surge in interfirm cooperative agreements can be seen as expressing a way for firms to respond to and to organize market failure, especially in technology markets. The incentives of firms to internalize activities are to avoid the disadvantages, or capitalize on the advantages, of imperfections or disequilibria in external mechanisms of resource allocations. The purpose of this paper is to investigate empirically the occurrence and importance of different modes of vertical relations between innovating firms, suppliers and users, using data from Germany. The analysis is based on a survey conducted by the "Center for European Economic Research " (Mannheim, Germany) among 3122 firms representing 378 different lines of business, mainly in the manufacturing sector. The main results can be summarized as follows: · 84 % of all innovating firms responded that they have had R&D cooperation agreements with either suppliers or customers or both. This percentage is even higher (99 %) if we consider only those innovating firms that have also had formal R&D departments. The phenomenon of vertical R&D cooperation is