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Market Concentration and the Analysis of Vertical Market Structures

Author

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  • Chavas, Jean-Paul

    (University of Wisconsin, Madison)

  • Shi, Guanming

    (University of Wisconsin, Madison)

Abstract

This paper investigates the pricing of differentiated products in a vertical sector, with a focus on the role of industry concentration. We propose concentration indices that extend the classical Hirschman-Herfindahl Index (HHI) to include vertical structures that manage differentiated products. We also identify how substitution/complementarity among products affects pricing. We compare our proposed indices with those proposed by Gans (2007). Additionally, we illustrate the utility of our approach by applying it to an analysis of mergers in the gasoline market. We note that our methodology is particularly applicable to analyses of those merger policies that involve upstream or downstream divestiture.

Suggested Citation

  • Chavas, Jean-Paul & Shi, Guanming, 2010. "Market Concentration and the Analysis of Vertical Market Structures," Staff Paper Series 551, University of Wisconsin, Agricultural and Applied Economics.
    • Handle: RePEc:ecl:wisagr:551
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    File URL: http://www.aae.wisc.edu/pubs/sps/pdf/stpap551.pdf
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    References listed on IDEAS

    as
    1. Shi, Guanming & Chavas, Jean, 2010. "On Pricing and Vertical Organization of Differentiated Products," Working Papers 201438, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    2. Justine S. Hastings, 2004. "Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California," American Economic Review, American Economic Association, vol. 94(1), pages 317-328, March.
    3. Shi, Guanming & Chavas, Jean-Paul, 2009. "On Pricing and Vertical Organization of Differentiated Products," Staff Paper Series 535, University of Wisconsin, Agricultural and Applied Economics.
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    Cited by:

    1. Shi, Guanming & Chavas, Jean-Paul, 2011. "The Effects of Vertical Organization on the Pricing of Differentiated Products," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(3), pages 1-17, December.
    2. Guanming Shi & Kyle W. Stiegert & Jean P. Chavas, 2011. "An analysis of bundle pricing in horizontal and vertical markets: The case of the U.S. cottonseed market," Agricultural Economics, International Association of Agricultural Economists, vol. 42, pages 77-88, November.
    3. Shi, Guanming & Chavas, Jean-Paul, 2009. "On Pricing and Vertical Organization of Differentiated Products," Staff Paper Series 535, University of Wisconsin, Agricultural and Applied Economics.

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