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Equilibrium structures in vertical oligopoly

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  • Abiru, Masahiro
  • Nahata, Babu
  • Raychaudhuri, Subhashis
  • Waterson, Michael

Abstract

The central purpose of this paper is to examine vertical integration as an equilibrium phenomenon. We model it as integration between Cournot oligopolists in both the upstream and the downstream stages. We consider the issue of private profitability versus collective profitability and show that under several situations the equilibrium outcomes may result in a Prisoner's dilemma. The analysis is extended to consider equilibrium outcomes in a dynamic setting, where we find no integration to be a relatively common outcome.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 37 (1998)
Issue (Month): 4 (December)
Pages: 463-480

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Handle: RePEc:eee:jeborg:v:37:y:1998:i:4:p:463-480

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  1. Colangelo, Giuseppe, 1995. "Vertical vs. Horizontal Integration: Pre-emptive Merging," Journal of Industrial Economics, Wiley Blackwell, vol. 43(3), pages 323-37, September.
  2. 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.
  3. Abiru, Masahiro, 1988. "Vertical Integration, Variable Proportions and Successive Oligopolies," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 315-25, March.
  4. Alexander Schrader & Stephen Martin, 1998. "Vertical Market Participation," Review of Industrial Organization, Springer, vol. 13(3), pages 321-331, June.
  5. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  6. Gérard Gaudet & Ngo Van Long, 1993. "Vertical Integration, Foreclosure and Profits in the Presence of Double Marginalisation," Cahiers de recherche du Département des sciences économiques, UQAM 9308, Université du Québec à Montréal, Département des sciences économiques.
  7. Bolton, Patrick & Whinston, Michael D, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 121-48, January.
  8. Lin, Y Joseph, 1988. "Oligopoly and Vertical Integration: Note," American Economic Review, American Economic Association, vol. 78(1), pages 251-54, March.
  9. Greenhut, M L & Ohta, H, 1979. "Vertical Integration of Successive Oligopolists," American Economic Review, American Economic Association, vol. 69(1), pages 137-41, March.
  10. Muris, Timothy J & Scheffman, David T & Spiller, Pablo T, 1992. "Strategy and Transaction Costs: The Organization of Distribution in the Carbonated Soft Drink Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 83-128, Spring.
  11. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  13. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
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Citations

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Cited by:
  1. Atallah, Gamal, 2007. "Monopolization through endogenous vertical mergers," Research in Economics, Elsevier, vol. 61(2), pages 99-104, June.
  2. Grandner, Thomas, 2001. "Unions in oligopolistic, vertically connected industries," European Economic Review, Elsevier, vol. 45(9), pages 1723-1740, October.
  3. Thomas Grandner, 2000. "A Note on Unionized Firms' Incentive to Integrate Vertically," Department of Economics Working Papers wuwp070, Vienna University of Economics, Department of Economics.
  4. Buehler, Stefan & Haucap, Justus, 2006. "Strategic outsourcing revisited," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 325-338, November.
  5. Lai, Ching-chong & Chin, Chi-ting & Chang, Shu-hua, 2010. "Vertical separation versus vertical integration in a macroeconomic model with imperfect competition," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 590-602, October.
  6. Thépot, Jacques & Netzer, Jean-Luc, 2008. "On the optimality of the full-cost pricing," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 282-292, October.
  7. Baake, Pio & Kamecke, Ulrich & Normann, Hans-Theo, 2004. "Vertical foreclosure versus downstream competition with capital precommitment," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 185-192, February.
  8. Arijit Mukherjee, 2002. "Licensing in a Vertically Separated Industry," Keele Economics Research Papers KERP 2002/09, Centre for Economic Research, Keele University.
  9. Stefania Borla, . "Horizontal and Vertial Integration in the Presence of Research Spillovers," Discussion Papers 04/12, Department of Economics, University of York.
  10. Feenstra, Robert C. & Huang, Deng-Shing & Hamilton, Gary G., 2003. "A market-power based model of business groups," Journal of Economic Behavior & Organization, Elsevier, vol. 51(4), pages 459-485, August.
  11. Arijit Mukherjee & Udo Broll & Soma Mukherjee, 2009. "The welfare effects of entry: the role of the input market," Journal of Economics, Springer, vol. 98(3), pages 189-201, December.
  12. BELLEFLAMME, Paul & TOULEMONDE, Eric, 2004. "B2B marketplaces : Emergence and entry," CORE Discussion Papers 2004078, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Ahmad Reza Saboori Memar & Georg Götz, 2013. "R&D Incentives in Vertically Related Markets," MAGKS Papers on Economics 201307, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  14. Bühler, Stefan & Schmutzler, Armin, 2003. "Who Integrates?," CEPR Discussion Papers 4066, C.E.P.R. Discussion Papers.
  15. Zhiyong Yao & Wen Zhou, 2011. "Endogenous Merger Waves in Vertically Related Industries," Working Papers 11-34, NET Institute.

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