Vertical Integration and Market Foreclosure with Convex Downstream Costs
AbstractIn a framework with an upstream monopoly and a downstream duopoly, we analyze the impact of convex costs on the downstream level. In constrast to the case of constant marginal costs, vertical integration does not imply complete market foreclosure. While the nonintegrated downstream ¯rm receives a strictly positive amount of the intermediate good, the downstream allocation is ine±cient. However, a parametrized example indicates that competition at the downstream level may increase aggregate welfare.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 260.
Length: 11 p.
Date of creation: 2001
Date of revision:
Vertical restraints; commitment;
Other versions of this item:
- Baake, P. & Kamecke, U. & Normann, H.T., 2001. "Vertical Integration and Market Foreclosure with Convex Downstream Costs," Papers 178, Flinders of South Australia - Discipline of Economics.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
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