Recent research has identified an important linkage between a firm's success at technological innovation and the degree to which research and development (R & D) activity is effectively coupled to the marketplace. It is posited that a different kind of integration may also contribute to a firm's success at technological innovation. This integration is not between R & D and the market, but between several phases of a production process. Specifically, it is hypothesized that when various stages of a production process bear technological similarities and complementarities, common ownership of R & D and the production facilities will enhance technological innovation. Fundamentally, it is posited that vertical integration and technological innovation can enhance innovation through the sharing of technological information, common to separate stages of an industry, by facilitating the implementation of new technology when complex interdependencies are involved and through the formulation of more astute research objectives. It is demonstrated that a strong and statistically significant relationship between vertical integration and technological innovation exists in the US petroleum industry for the period 1954-1975.
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