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.
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