Outsorcing, complementary innovations and growth

this papers studies the parallel creation of complementary upstream and downstream innovations by independent labs to sheld light on the impact of outsourced on R&D when supply contracts are incomplete. In particular, we argue tha outsourced upstream producion contributes to the emergence of innovation networks by creating a demand for upstream R&D. We then analyze under which conditions this leads to faster innovation thaan in the case of vertically integrated production relying on integraed R&D. In the presence of incomplete supply contracts, the ex-post bargaining power of upstream and downstream parties feed back to innovation. this determines whether outsourcing decisions leading to static gains from specialized production generate or not also dynamic gains in terms of faster innovations