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Passive forward ownership and upstream collusion

Author

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  • Charistos, Konstantinos
  • Pinopoulos, Ioannis N.
  • Skartados, Panagiotis

Abstract

We investigate the effects of passive forward ownership on the sustainability of upstream collusion. We consider a homogeneous Cournot duopoly with competing vertical chains, where each upstream firm has symmetric passive ownership over its downstream exclusive client. With general demand, (i) we show that passive forward ownership increases collusive profits, (ii) we identify two opposing effects of passive forward ownership on punishment and deviating profits: a positive (direct) effect due to ownership and a negative effect working through input prices. By considering three demand functions, including the widely-used linear demand, we show that passive forward ownership hinders upstream collusion.

Suggested Citation

  • Charistos, Konstantinos & Pinopoulos, Ioannis N. & Skartados, Panagiotis, 2022. "Passive forward ownership and upstream collusion," Economics Letters, Elsevier, vol. 216(C).
    • Handle: RePEc:eee:ecolet:v:216:y:2022:i:c:s0165176522001847
    DOI: 10.1016/j.econlet.2022.110608
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    References listed on IDEAS

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    1. Normann, Hans-Theo, 2009. "Vertical integration, raising rivals' costs and upstream collusion," European Economic Review, Elsevier, vol. 53(4), pages 461-480, May.
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    5. Salvatore Piccolo & Markus Reisinger, 2011. "Exclusive Territories and Manufacturers' Collusion," Management Science, INFORMS, vol. 57(7), pages 1250-1266, July.
    6. Shekhar, Shiva & Thomes, Tim Paul, 2020. "Passive backward acquisitions and downstream collusion," Economics Letters, Elsevier, vol. 197(C).
    7. Ángel L. López & Xavier Vives, 2019. "Overlapping Ownership, R&D Spillovers, and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2394-2437.
    8. Volker Nocke & Lucy White, 2007. "Do Vertical Mergers Facilitate Upstream Collusion?," American Economic Review, American Economic Association, vol. 97(4), pages 1321-1339, September.
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    Cited by:

    1. Lee, Jen-Yao & Wang, Leonard F. S. & Sun, Ji, 2022. "Relative-performance delegation destabilizes upstream collusion," MPRA Paper 114939, University Library of Munich, Germany, revised 12 Oct 2022.
    2. Bin Ying & Leonard F. S. Wang & Qidi Zhang, 2023. "Upstream collusion and corporate social responsibility in downstream competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1020-1028, March.

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    More about this item

    Keywords

    Competing vertical chains; Passive vertical ownership; Tacit collusion;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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