Merge and Compete. Strategic incentives for vertical integration
AbstractVertical integration followed by quantity competition is studied. In the first stage of the game downstream firms simultaneously decide whether to integrate with one of the upstream suppliers. If firms are not able to observe whether their vertically integrated competitor enters the intermediate-good market then they are indifferent about vertical integration. If the entry choice of the integrated firm is observable then the unique equilibrium involves vertical integration and in-house production of the intermediate good. The importance of entry observability sheds light on the strategic importance of information exchange institutions such as the internet and business fairs.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 608.
Date of creation: Dec 2006
Date of revision:
Vertical integration; Cournot competition; Market entry;
Other versions of this item:
- Filippo Vergara Caffarelli, 2007. "Merge and Compete: Strategic Incentives for Vertical Integration," Rivista di Politica Economica, SIPI Spa, vol. 97(5), pages 203-244, September.
- Filippo Vergara Caffarelli, 2002. "Merge and compete: strategic incentives to vertical integration," Working Papers 65, University of Rome La Sapienza, Department of Public Economics.
- Filippo VERGARA CAFFARELLI, 2004. "Merge and Compete: Strategic Incentives To Vertical Integration," Industrial Organization 0402004, EconWPA.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-02 (All new papers)
- NEP-BEC-2007-01-02 (Business Economics)
- NEP-COM-2007-01-02 (Industrial Competition)
- NEP-CSE-2007-01-02 (Economics of Strategic Management)
- NEP-IND-2007-01-02 (Industrial Organization)
- NEP-MIC-2007-01-02 (Microeconomics)
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