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Vertical relations and number of channels in quality-differentiated markets

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  • E. Bacchiega
  • O. Bonroy

Abstract

Double marginalization causes inefficiencies in vertical markets. This paper argues that such inefficiencies may be beneficial to final consumers in markets producing vertically differentiated goods. The rationale behind this result is that enhancing efficiency in high-quality supply chains through vertical integration may drive out of the market low-quality ones, thus affecting market structure. As a consequence, restoring-efficiency vertical integration may reduce consumer surplus, even in the absence of foreclosure strategies by the newly integrated firms. From a policy standpoint, our paper suggests that input and/or customer foreclosure should not be considered as the only source of antitrust concern when assessing the effects of vertical integration.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number wp823.

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Date of creation: Apr 2012
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Handle: RePEc:bol:bodewp:wp823

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  1. George Norman & Lynne Pepall, 2000. "Product Differentiation and Upstream-Downstream Relations," Discussion Papers Series, Department of Economics, Tufts University 0010, Department of Economics, Tufts University.
  2. GABSZEWICZ, Jean J. & TURRINI, Alessandro, . "Workers' skills, product quality and industry equilibrium," CORE Discussion Papers RP -1451, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Bonroy, O. & Lemarié, S., 2010. "Downstream labeling and upstream price competition," Working Papers 201001, Grenoble Applied Economics Laboratory (GAEL).
  4. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 345-53, September.
  5. Roberto Hernan & Praveen Kujal, 2006. "Vertical Integration, Market Foreclosure And Quality Investment," Economics Working Papers we061405, Universidad Carlos III, Departamento de Economía.
  6. Jeffrey Church & Neil Gandal, 2000. "Systems Competition, Vertical Merger, and Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(1), pages 25-51, 03.
  7. Pierpaolo Battigalli & Chiara Fumagalli & Michele Polo, 2006. "Buyer Power and Quality Improvement," Working Papers 310, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  8. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  9. BELLEFLAMME, Paul & TOULEMONDE, Eric, . "Product differentiation in successive vertical oligopolies," CORE Discussion Papers RP -1720, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Avenel, E. & Caprice, S., 2006. "Upstream market power and product line differentiation in retailing," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 319-334, March.
  11. C. Robert Clark & Mattias K. Polborn, 2011. "Strategic Buying to Prevent Seller Exit," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 339-378, 06.
  12. E. Avenel, 2008. "STRATEGIC VERTICAL INTEGRATION WITHOUT FORECLOSURE -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 247-262, 06.
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