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Market Size and Vertical Integration: Stigler's Hypothesis Reconsidered

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  • Elberfeld, Walter
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    Abstract

    According to Stigler (1951), vertical disintegration should be the typical development in growing industries, vertical integration in declining industries. The basic argument is that firms will spin off production stages subject to increasing returns to scale in response to market growth. This paper re-examines Stigler's hypothesis within an equilibrium model of industrial structure in which the organization of firms is endogenous. Stigler's hypothesis is confirmed when entry into markets is free and firms compete. However, when entry into the intermediate good market is restricted, or intermediate good producers collude, vertical integration increases with market size. Copyright 2002 by Blackwell Publishing Ltd

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

    Volume (Year): 50 (2002)
    Issue (Month): 1 (March)
    Pages: 23-42

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    Handle: RePEc:bla:jindec:v:50:y:2002:i:1:p:23-42

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    Cited by:
    1. Buehler, Stefan & Schmutzler, Armin, 2008. "Intimidating competitors -- Endogenous vertical integration and downstream investment in successive oligopoly," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 247-265, January.
    2. Timothy F. Bresnahan & Jonathan D. Levin, 2012. "Vertical Integration and Market Structure," NBER Working Papers 17889, National Bureau of Economic Research, Inc.
    3. Eckel, Carsten, 2003. "Does globalization lead to specialization?," Center for European, Governance and Economic Development Research Discussion Papers 20, University of Goettingen, Department of Economics.
    4. Ledezma, Ivan, 2010. "Endogenous asymmetries in technology adoption and international trade," Economics Papers from University Paris Dauphine 123456789/5841, Paris Dauphine University.
    5. Eckel, Carsten, 2003. "Does globalization lead to specialization?," Center for European, Governance and Economic Development Research Discussion Papers 20, University of Goettingen, Department of Economics.

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