The existing literature on R& networks has focused on networks among firms who compete in the product market (downstream networks). This article develops the literature by casting the analysis in the context of a vertically related industry, where both downstream firms and their upstream suppliers can form horizontal R& networks.Our analysis suggests that economic factors,such as withinnetwork R& spillovers, may be the driving forces behind the equilibrium network formations. Moreover, the equilibrium upstream R& network may have the same architecture as the downstream R& network or may differ from it. Interestingly, we find that stable networks can be socially optimal, but only in the case where their architectures differ across market tiers.