Th is paper develop s a vert ical indu st rial group model in w h ich vert ical innovat ion s affect econom ic grow th and give a reso lu t ion s on it. The model is a syn thesized endogenou s grow th model that inco rpo rates two catego ry models in the new grow th theo ry that are cap ital2based models and idea2based models. In the model, group 2co rpo rat ion A is an up st ream f irm that takes on R&D act ivi2 t ies and u ses it s techno logy to p roduce in term ediate goods. The quality imp rovem en t of in term ediate goods raises the p roduct ivity of f inal good p roduct ion. Sub sidiary2co rpo rat ion B is a dow n st ream f irm that p roduces f inal goods u sing in term ediate goods and cap ital as inpu t. Bo th the co rpo rat ion A and B p lay signaling gam es w ith m arket s in the Cou rno t m arket.