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Successive Monopolies with Endogenous Quality

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  • Zenger, Hans
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    Abstract

    This paper analyzes the impact of vertical integration on product quality. Contrary to previous findings, it is shown that integration decreases quality in many natural situations. In general, the direction of the quality change is governed by three effects that are isolated in the model. This separation allows an analysis of important special cases like the manufacturer/retailer relationship, the intermediate/final good producer relationship, the deregulation of network infrastructure, and the provision of promotional services through independent distributors.

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    File URL: http://mpra.ub.uni-muenchen.de/15659/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15659.

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    Date of creation: 03 May 2009
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    Handle: RePEc:pra:mprapa:15659

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    Keywords: Vertical integration; double marginalization; quality;

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    1. Francine Lafontaine, 1995. "Pricing Decisions in Franchised Chains: A Look at the Restaurant and Fast-Food Industry," NBER Working Papers 5247, National Bureau of Economic Research, Inc.
    2. Benz, Men-Andri & Bühler, Stefan & Schmutzler, Armin, 2003. "Infrastructure Quality in Deregulated Industries: Is there an Underinvestment Problem?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3836, C.E.P.R. Discussion Papers.
    3. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    4. Winter, Ralph A, 1993. "Vertical Control and Price versus Nonprice Competition," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(1), pages 61-76, February.
    5. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 58, pages 347.
    6. Douglas West, 2000. "Double Marginalization and Privatization in Liquor Retailing," Review of Industrial Organization, Springer, Springer, vol. 16(4), pages 399-415, June.
    7. Smith, Richard L, II, 1982. "Franchise Regulation: An Economic Analysis of State Restrictions on Automobile Distribution," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 25(1), pages 125-57, April.
    8. Perry, Martin K & Groff, Robert H, 1985. "Resale Price Maintenance and Forward Integration into a Monopolistically Competitive Industry," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(4), pages 1293-1311, November.
    9. Kühn, Kai-Uwe & Vives, Xavier, 1995. "Excess Entry, Vertical Integration and Welfare," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1293, C.E.P.R. Discussion Papers.
    10. Miklós-Thal, Jeanine & Rey, Patrick & Vergé, Thibaud, 2010. "Vertical relations," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(4), pages 345-349, July.
    11. Patrick Rey & Jean Tirole, 1985. "The Logic of Vertical Restraints," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 396, Massachusetts Institute of Technology (MIT), Department of Economics.
    12. Economides, Nicholas, 1999. "Quality choice and vertical integration," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 17(6), pages 903-914, August.
    13. Nancy T. Gallini & Brian D. Wright, 1990. "Technology Transfer under Asymmetric Information," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 147-160, Spring.
    14. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
    15. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, Elsevier, vol. 18(2), pages 301-317, August.
    16. Sheshinski, Eytan, 1976. "Price, Quality and Quantity Regulation in Monopoly Situations," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 43(17), pages 127-37, May.
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