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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. Economides, Nicholas, 1999. "Quality choice and vertical integration," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 903-914, August.
    2. Stefan Buehler & Armin Schmutzler & Men-Andri Benz, 2002. "Infrastructure Quality in Deregulated Industries: Is there an Underinvestment Problem?," SOI - Working Papers 0209, Socioeconomic Institute - University of Zurich.
    3. 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, vol. 100(4), pages 1293-1311, November.
    4. 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, vol. 25(1), pages 125-57, April.
    5. 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.
    6. 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.
    7. 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.
    8. Nicholas Economides, 1995. "The Economics of Networks," Working Papers 94-24, New York University, Leonard N. Stern School of Business, Department of Economics, revised Sep 1995.
    9. Miklós-Thal, Jeanine & Rey, Patrick & Vergé, Thibaud, 2010. "Vertical relations," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 345-349, July.
    10. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    11. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347.
    12. Douglas West, 2000. "Double Marginalization and Privatization in Liquor Retailing," Review of Industrial Organization, Springer, vol. 16(4), pages 399-415, June.
    13. Winter, Ralph A, 1993. "Vertical Control and Price versus Nonprice Competition," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 61-76, February.
    14. Kühn, Kai-Uwe & Vives, Xavier, 1995. "Excess Entry, Vertical Integration and Welfare," CEPR Discussion Papers 1293, C.E.P.R. Discussion Papers.
    15. Sheshinski, Eytan, 1976. "Price, Quality and Quantity Regulation in Monopoly Situations," Economica, London School of Economics and Political Science, vol. 43(17), pages 127-37, May.
    16. Patrick Rey & Jean Tirole, 1985. "The Logic of Vertical Restraints," Working papers 396, Massachusetts Institute of Technology (MIT), Department of Economics.
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