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The effects of vertical integration on competing input suppliers

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  • R. Preston McAfee

Abstract

When a downstream firm buys an input supplier, it can reduce its costs of using that input. Other input suppliers typically respond by pricing more aggressively, given the demand reduction, which tends to lower input supply costs to other firms. Thus, a vertical merger may lower rivals' costs instead of raising them.

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Bibliographic Info

Article provided by Federal Reserve Bank of Cleveland in its journal Economic Review.

Volume (Year): (1999)
Issue (Month): Q I ()
Pages: 2-8

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Handle: RePEc:fip:fedcer:y:1999:i:qi:p:2-8

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Related research

Keywords: Competition;

References

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  1. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
  3. 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.
  4. Salop, Steven C & Scheffman, David T, 1987. "Cost-Raising Strategies," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 19-34, September.
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Cited by:
  1. Pei-Cheng Liao, 2010. "Discriminatory input pricing and strategic delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(4), pages 263-276.
  2. Thomas, Charles J., 2011. "Vertical mergers in procurement markets," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 200-209, March.
  3. William P. Osterberg & James B. Thomson, 1999. "Banking consolidation and correspondent banking," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 9-20.
  4. Bhuyan, Sanjib, 2001. "Impact Of Vertical Mergers On Food Industry Profitability: An Empirical Evaluation," 2001 Annual meeting, August 5-8, Chicago, IL 20469, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Kerem Cakirer, 2007. "A Fixed Effect Model of Endogenous Integration Decision and Its Competitive Effects," Working Papers 2007-18, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

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