Vertical integration and product differentiation
AbstractWe study horizontal product differentiation as a strategic decision of downstream firms facing a threat of vertical integration and market foreclosure by an upstream monopolist. We model product differentiation either as pure market segmentation or as generating positive value to consumers. Because of the threat of vertical integration, the downstream firms prefer more differentiation when the latter merely yields the anticompetitive effects of market segmentation, while they may prefer less differentiation when the latter would generate additional social value. Therefore, instead of market foreclosure, we indicate market segmentation or under-investment in socially valuable activities, such as product innovation, design, and informative advertising, as possible social costs of a lenient antitrust policy towards vertical mergers.
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Bibliographic InfoPaper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 12/17.
Date of creation: Apr 2012
Date of revision: Sep 2012
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Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
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