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Merge and compete: strategic incentives to vertical integration

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  • Filippo Vergara Caffarelli

Abstract

Vertical integration followed by quantity competition is studied. The downstream Þrms simultaneously decide whether to integrate with one of the upstream suppliers. If Þrms are not able to observe whether the vertically integrated competitor enters the intermediate good market, they are indifferent about vertical integration. However, if it is possible to observe the entry choice of the vertically integrated entity, the unique equilibrium involves vertical integration and in-house production of the intermediate good. The importance of entry’s observability sheds light on the strategic importance of information exchange institutions such as the internet and business fairs.

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Bibliographic Info

Paper provided by University of Rome La Sapienza, Department of Public Economics in its series Working Papers with number 65.

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Length: 32
Date of creation: Feb 2002
Date of revision:
Handle: RePEc:sap:wpaper:wp65

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Keywords: Vertical integration; market entry.;

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