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On the Merits of Vertical Divestiture

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  • David Sappington

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Abstract

This paper demonstrates that vertical divestiture may increase consumer welfare even when the divestiture eliminates substantial scope economies and precludes only limited sabotage. More generally, the merits of vertical divestiture are shown to vary with: (1) the type and the intensity of competition in the retail market; (2) the locus of scope economies under vertical integration; and (3) the relative social values of consumers’ surplus and profit. Copyright Springer Science+Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s11151-006-9116-6
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Bibliographic Info

Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 29 (2006)
Issue (Month): 3 (November)
Pages: 171-191

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Handle: RePEc:kap:revind:v:29:y:2006:i:3:p:171-191

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Web page: http://www.springerlink.com/link.asp?id=100336

Related research

Keywords: regulation; sabotage; vertical divestiture;

References

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  1. Kondaurova, Irina & Weisman, Dennis L., 2003. "Incentives for non-price discrimination," Information Economics and Policy, Elsevier, vol. 15(2), pages 147-171, June.
  2. Kaserman, David L & Mayo, John W, 1991. "The Measurement of Vertical Economies and the Efficient Structure of the Electric Utility Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 483-502, September.
  3. Reiffen, David & Schumann, Laurence & Ward, Michael R, 2000. "Discriminatory Dealing with Downstream Competitors: Evidence from the Cellular Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 253-86, September.
  4. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
  5. Beard, T Randolph & Kaserman, David L & Mayo, John W, 2001. "Regulation, Vertical Integration and Sabotage," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 319-33, September.
  6. Wood, LisaV. & Sappington, DavidE.M., 2004. "On the design of performance measurement plans in the telecommunications industry," Telecommunications Policy, Elsevier, vol. 28(11), pages 801-820, December.
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Citations

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Cited by:
  1. Nikogosian, Vigen & Veith, Tobias, 2011. "Vertical integration, separation and non-price discrimination: An empirical analysis of German electricity markets for residential customers," ZEW Discussion Papers 11-069, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Chen, Yongmin & Sappington, David E.M., 2009. "Designing input prices to motivate process innovation," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 390-402, May.
  3. Isabel Soares & Paula Sarmento, 2012. "Unbundling in the Telecommunications and the Electricity Sectors: How Far should it Go?," European Research Studies Journal, European Research Studies Journal, vol. 0(Special I), pages 157-194.
  4. Debashis Pal & David Sappington & Ying Tang, 2012. "Sabotaging cost containment," Journal of Regulatory Economics, Springer, vol. 41(3), pages 293-314, June.
  5. Jain, Bharat A. & Kini, Omesh & Shenoy, Jaideep, 2011. "Vertical divestitures through equity carve-outs and spin-offs: A product markets perspective," Journal of Financial Economics, Elsevier, vol. 100(3), pages 594-615, June.
  6. Raffaele Fiocco, 2012. "Competition and regulation with product differentiation," Journal of Regulatory Economics, Springer, vol. 42(3), pages 287-307, December.
  7. David Mandy & David Sappington, 2007. "Incentives for sabotage in vertically related industries," Journal of Regulatory Economics, Springer, vol. 31(3), pages 235-260, June.
  8. J.A. den Hertog, 2010. "Review of economic theories of regulation," Working Papers 10-18, Utrecht School of Economics.

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