Can Vertical Separation Reduce Non-Price Discrimination and Increase Welfare?
AbstractWe investigate if vertical separation reduces non-price discrimination and increases welfare. Consider an industry consisting of a vertically integrated firm and an independent retailer, which requires access to the vertically integrated firm's wholesaler services. The wholesaler can degrade the quality of input it supplies to either of the retailers. Discrimination occurs if one of the retailers is supplied an input of lower quality than its rival. We show that separation of the vertically integrated firm reduces discrimination against the independent retailer, although it does not guarantee no-discrimination. Furthermore, with separation, the wholesaler may discriminate against the vertically integrated firm's retailer. Vertical separation impacts social welfare through two e¤ects. First, through the double-marginalization effect, which is negative. Second, through the quality degradation effect, which can be positive or negative. Hence, the net welfare impact of vertical separation is negative or potentially ambiguous.
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Bibliographic InfoPaper provided by University of Evora, CEFAGE-UE (Portugal) in its series CEFAGE-UE Working Papers with number 2011_06.
Length: 37 pages
Date of creation: 2011
Date of revision:
Vertigal integration; Vertical separation; Non-price discrimination.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-16 (All new papers)
- NEP-COM-2011-04-16 (Industrial Competition)
- NEP-MIC-2011-04-16 (Microeconomics)
- NEP-REG-2011-04-16 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul de Bijl, 2005. "Structural Separation and Access in Telecommunications Markets," CESifo Working Paper Series 1554, CESifo Group Munich.
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