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Excess Entry, Vertical Integration and Welfare

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Author Info
Kühn, Kai-Uwe
Vives, Xavier

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Abstract

This paper provides a systematic analysis of the welfare effects of vertical integration by a monopolistic input supplier into a monopolistically competitive downstream industry. We give sufficient conditions on consumer preferences that lead to Pareto improving vertical integration. We demonstrate a close relationship between assumptions on preference for variety, excess entry in monopolistically competitive markets, and the welfare effects of vertical integration. Both excess entry and welfare improving vertical integration arise only if preference for variety falls as variety increases for given total output.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1293.

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Date of creation: Nov 1995
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Handle: RePEc:cpr:ceprdp:1293

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Related research
Keywords: Excess Entry; Preference for Variety; Vertical Integration;

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Find related papers by JEL classification:
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

Cited by:
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  1. G. Chemla, 1999. "Downstream competition, foreclosure, and vertical integration," THEMA Working Papers 99-18, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
    Other versions:
  2. King, S.P., 2000. "Does Structure Dominate Regulation? The Case of an Input Monopolist," Department of Economics - Working Papers Series 767, The University of Melbourne. [Downloadable!]
  3. Inderst, Roman & Wey, Christian, 2001. "Bargaining, Mergers and Technology Choice in Bilaterally Oligopolistic Industries," CEPR Discussion Papers 2981, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Suchan Chae & Paul Heidhues, 2003. "Buyers’ Alliances for Bargaining Power," CIG Working Papers SP II 2003-24, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
    Other versions:
  5. César Costa Alves de Mattos, 2001. "Integração Vertical em Telecomunicações e Fechamento através de Preços de Acesso," Anais do XXIX Encontro Nacional de Economia [Proceedings of the 29th Brazilian Economics Meeting] 065, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  6. Chrysovalantou MILLIOU, 2001. "Vertical Integration and R&D Spillovers: Is There a Need for 'Firewalls'?," Economics Working Papers ECO2001/17, European University Institute. [Downloadable!]
  7. Zenger, Hans, 2009. "Successive Monopolies with Endogenous Quality," MPRA Paper 15659, University Library of Munich, Germany. [Downloadable!]
  8. María Fernanda Viecens, 2009. "Pricing strategies in two-sided platforms: The role of sellers’ competition," Working Papers 2009-11, FEDEA. [Downloadable!]
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