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Vertical Integration, Foreclosure and Profits in the Presence of Double Marginalisation

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  • Gérard Gaudet
  • Ngo Van Long

    ()

Abstract

Whether vertical integration between a downstrean oligopolist and an upstream oligopolist is profitable for an integrated pair of firms is shown to depend on how one formulates the questions, on the number of firms in each oligopoly and on the type of interaction which is assumed between firms that are integrated and firms that are not. In particular, it is shown that if no restriction is put on trade between integrated and non integrated firms, integrated firms may continue to purchase inputs from the non integrated upstream firms, with the goal of raising their downstream rival's costs. Furthermore, even though firms are identical, asymmetric equilibria, where integrated and non integrated firms coexist, may actually arise as an outcome of the integration game. La rentabilité de l'intégration verticale entre une firme à l'amont et une firme à l'aval dépend de la manière de poser la question, du nombre de firmes et du type d'interaction entre les firmes intégrées et les firmes non-intégrées. Si l'on n'impose aucune contrainte sur les transactions entre les firmes intégrées et les firmes non-intégrées, alors les premières peuvent continuer à acheter l'input produit par les firmes non-intégrées à l'amont afin de hausser les coûts des firmes non-intégrées à l'aval. On montre que, même dans le cas où les firmes sont identiques, il y a des équilibres asymétriques dans le jeu d'intégration.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 95s-40.

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Date of creation: 01 Sep 1995
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Handle: RePEc:cir:cirwor:95s-40

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Keywords: Integration vertical; integration game; asymmetric equilibria; Intégration verticale; jeu d'intégration; équilibre asymétrique;

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