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Vertical Separation as a Defense against Strong Suppliers

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  • Noriaki Matsushima
  • Tomomichi Mizuno

Abstract

We provide a simple model to investigate decisions about vertical separation. The key feature of this model is that more than one input is required for the final product of the downstream monopolist. We show that as the bargaining powers of independent complementary input suppliers grow larger, the downstream monopolist tends to separate from its input units. The results are related to a visible difference between the vertical structures of Japanese and US auto assemblers.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0755.

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Date of creation: Sep 2009
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Handle: RePEc:dpr:wpaper:0755

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Cited by:
  1. Noriaki Matsushima & Tomomichi Mizuno, 2010. "How do market structures affect decisions on vertical integration/separation?," ISER Discussion Paper 0770, Institute of Social and Economic Research, Osaka University.
  2. Noriaki Matsushima & Fumitoshi Mizutani, 2011. "Market Size and Vertical Structure in the Railway Industry," ISER Discussion Paper 0820, Institute of Social and Economic Research, Osaka University.

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