Intimidating competitors -- Endogenous vertical integration and downstream investment in successive oligopoly
AbstractWe examine the interplay of endogenous vertical integration and costreducing downstream investment in successive oligopoly. We start from a linear Cournot model to motivate our more general reducedform framework. For this general framework, we establish the following main results: First, vertical integration increases own investment and decreases competitor investment (intimidation effect). Second, asymmetric equilibria typically involve integrated firms that invest more into effciency than their separated counterparts. Our findings suggest that asymmetric vertical integration is a potential explanation for the initial difference between leader and laggard in investment games.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 26 (2008)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/inca/505551
Other versions of this item:
- Stefan Buehler & Armin Schmutzler, 2004. "Intimidating Competitors – Endogenous Vertical Integration and Downstream Investment in Successive Oligopoly," SOI - Working Papers 0409, Socioeconomic Institute - University of Zurich, revised Jul 2005.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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