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Vertical separation as a defense against strong suppliers

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  • Matsushima, Noriaki
  • Mizuno, Tomomichi

Abstract

We provide a simple model to investigate decisions about vertical separation. The key feature of this model is that more than one input is required for the final product of the downstream monopolist. We show that as the bargaining powers of independent complementary input suppliers grow larger, the downstream monopolist tends to separate from its input units. The results are related to a visible difference between the vertical structures of Japanese and US auto assemblers.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Operational Research.

Volume (Year): 228 (2013)
Issue (Month): 1 ()
Pages: 208-216

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Handle: RePEc:eee:ejores:v:228:y:2013:i:1:p:208-216

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Web page: http://www.elsevier.com/locate/eor

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Keywords: Multiple inputs; Bargaining; Disintegration; Double marginalization; Organization theory; Economics;

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Cited by:
  1. Noriaki Matsushima & Tomomichi Mizuno, 2010. "How do market structures affect decisions on vertical integration/separation?," ISER Discussion Paper 0770, Institute of Social and Economic Research, Osaka University.
  2. Noriaki Matsushima & Fumitoshi Mizutani, 2011. "Market Size and Vertical Structure in the Railway Industry," ISER Discussion Paper 0820, Institute of Social and Economic Research, Osaka University.

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