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Vertical Separation as a Defense against Strong Suppliers

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Author Info
Noriaki Matsushima
Tomomichi Mizuno

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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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