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Does Vertical Integration Promote Downstream Incomplete Collusion? An Evaluation of Static and Dynamic Stability

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  • Mariana Cunha

    ()
    (FEP-UP, School of Economics and Management)

  • Paula Sarmento

    ()
    (CEF.UP, Research Center in Economics and Finance, University of Porto and FEP-UP)

Abstract

This paper analyzes the impact of vertical integration on the static and dynamic stability of downstream incomplete collusion. It is shown that a vertical merger between an upstream firm and a downstream cartel or fringe firm promotes downstream collusion, under certain conditions on the market size. However, for low market concentration, a vertical merger with a cartel firm hinders collusion. Moreover, a welfare analysis shows that consumer surplus increases with the vertical merger because the merger partially eliminates the double marginalization problem.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 465.

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Length: 35 pages
Date of creation: Aug 2012
Date of revision:
Handle: RePEc:por:fepwps:465

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Keywords: Vertical integration; Collusion; Cartel Stability;

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