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Asymmetric Vertical Integration

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Author Info
Stefan Buehler (University of Zurich and University of St. Gallen)
Armin Schmutzler (University of Zurich, CEPR and ENCORE)

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Abstract

We examine vertical backward integration in a reduced-form model of successive oligopolies. Our key findings are: (i) There may be asymmetric equilibria where some firms integrate and others remain separated, even if firms are symmetric initially; (ii) Efficient firms are more likely to integrate vertically. As a result, integrated firms also tend to have a large market share. The driving force behind these findings are demand/mark-up complementarities in the product market. We also identify countervailing forces resulting from strong vertical foreclosure, upstream sales and endogenous acquisition costs.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Advances in Theoretical Economics.

Volume (Year): 5 (2005)
Issue (Month): 1 ()
Pages: 1164-1164
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Handle: RePEc:bep:theadv:v:5:y:2005:i:1:p:1164-1164

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Related research
Keywords: successive oligopolies vertical integration efficiency foreclosure

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Chen, Yongmin, 2001. "On Vertical Mergers and Their Competitive Effects," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 667-85, Winter.
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  2. Christopher M. Snyder, 1996. "A Dynamic Theory of Countervailing Power," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 747-769, Winter. [Downloadable!] (restricted)
  3. Géarard Gaudet & Ngo Long, 1996. "Vertical Integration, Foreclosure, and profits in the Presence of Double Marginalization," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 5(3), pages 409-432, 09. [Downloadable!] (restricted)
    Other versions:
  4. Bühler, Stefan & Schmutzler, Armin, 2003. "Who Integrates?," CEPR Discussion Papers 4066, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Zava Aydemir & Stefan Buehler, 2002. "Estimating Vertical Foreclosure in U.S. Gasoline Supply," Working Papers 0212, University of Zurich, Socioeconomic Institute. [Downloadable!]
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  6. Thomas Borek & Stefan Buehler & Armin Schmutzler, 2002. "Weddings with Uncertain Prospects – Mergers under Asymmetric Information," Working Papers 0213, University of Zurich, Socioeconomic Institute, revised Feb 2004. [Downloadable!]
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  7. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November. [Downloadable!] (restricted)
  8. Esther Gal-Or, 1990. "Excessive Retailing at the Bertrand Equilibria," Canadian Journal of Economics, Canadian Economics Association, vol. 23(2), pages 294-304, May. [Downloadable!] (restricted)
  9. Woodruff, Christopher, 2002. "Non-contractible investments and vertical integration in the Mexican footwear industry," International Journal of Industrial Organization, Elsevier, vol. 20(8), pages 1197-1224, October. [Downloadable!] (restricted)
  10. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185. [Downloadable!] (restricted)
  11. Slade, Margaret E, 1998. "Strategic Motives for Vertical Separation: Evidence from Retail Gasoline Markets," Journal of Law, Economics and Organization, Oxford University Press, vol. 14(1), pages 84-113, April.
  12. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
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  13. Yves Schneider & Peter Zweifel, 2004. "How Much Internalization of Nuclear Risk Through Liability Insurance?," Journal of Risk and Uncertainty, Springer, vol. 29(3), pages 219-240, December. [Downloadable!]
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  14. Rainer Winkelmann, 2002. "Subjektive Daten in der empirischen Wirtschaftsforschung: Probleme und Perspektiven," Working Papers 0207, University of Zurich, Socioeconomic Institute, revised Jul 2002. [Downloadable!]
  15. Mahler, Philippe & Winkelmann, Rainer, 2004. "Single Motherhood and (Un)Equal Educational Opportunities: Evidence for Germany," IZA Discussion Papers 1391, Institute for the Study of Labor (IZA). [Downloadable!]
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  16. Waterman, David & Weiss, Andrew A., 1996. "The effects of vertical integration between cable television systems and pay cable networks," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 357-395. [Downloadable!] (restricted)
  17. Stefan Buehler & Armin Schmutzler & Men-Andri Benz, 2002. "Infrastructure Quality in Deregulated Industries: Is there an Underinvestment Problem?," Working Papers 0209, University of Zurich, Socioeconomic Institute. [Downloadable!]
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  18. Vita, Michael G, 2000. "Regulatory Restrictions on Vertical Integration and Control: The Competitive Impact of Gasoline Divorcement Policies," Journal of Regulatory Economics, Springer, vol. 18(3), pages 217-33, November. [Downloadable!] (restricted)
  19. Tasneem Chipty, 2001. "Vertical Integration, Market Foreclosure, and Consumer Welfare in the Cable Television Industry," American Economic Review, American Economic Association, vol. 91(3), pages 428-453, June. [Downloadable!] (restricted)
  20. Susan Athey & Armin Schmutzler, 1995. "Product and Process Flexibility in an Innovative Environment," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 557-574, Winter. [Downloadable!] (restricted)
  21. Athey, Susan & Schmutzler, Armin, 2001. "Investment and Market Dominance," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 1-26, Spring.
  22. Ivan Dufeu, 2004. "Market Size and Vertical Equilibrium in the Context of Successive Cournot Oligopolies," Topics in Theoretical Economics, Berkeley Electronic Press, vol. 4(1), pages 1122-1122. [Downloadable!] (restricted)
  23. Abiru, Masahiro & Nahata, Babu & Raychaudhuri, Subhashis & Waterson, Michael, 1998. "Equilibrium structures in vertical oligopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 37(4), pages 463-480, December. [Downloadable!] (restricted)
    Other versions:
  24. Thomas Borek & Stefan Buehler & Armin Schmutzler, 2004. "Mergers under Asymmetric Information – Is there a Lemons Problem?," Working Papers 0408, University of Zurich, Socioeconomic Institute. [Downloadable!]
  25. Andreas Polk & Armin Schmutzler, 2003. "Lobbying against Environmental Regulation vs. Lobbying for Loopholes," Working Papers 0301, University of Zurich, Socioeconomic Institute. [Downloadable!]
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  26. Jansen, Jos, 2003. "Coexistence of strategic vertical separation and integration," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 699-716, May. [Downloadable!] (restricted)
  27. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May. [Downloadable!] (restricted)
  28. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March. [Downloadable!] (restricted)
  29. Dennis Gaertner & Daniel Halbheer, 2004. "Are There Waves in Merger Activity After All?," Working Papers 0414, University of Zurich, Socioeconomic Institute, revised Feb 2006. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Anette Boom & Stefan Buehler, 2007. "Restructuring Electricity Markets when Demand is Uncertain: Effects on Capacity Investments, Prices and Welfare," CIE Discussion Papers 2007-09, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
  2. G. Rossini, 2005. "Pitfalls in private and social incentives of vertical crossborder outsourcing," Working Papers 536, Dipartimento Scienze Economiche, Università di Bologna. [Downloadable!]
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This page was last updated on 2008-7-1.

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