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Asymmetric Vertical Integration

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Author Info
Stefan Buehler () (Socioeconomic Institute, University of Zurich)
Armin Schmutzler () (Socioeconomic Institute, University of Zurich)

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Abstract

We examine vertical backward integration in a reducedform model of successive oligopolies. Our key findings are: (i) There may be asymmetric equilibria where some firms integrate and others remain separated, even if firms are symmetric initially; (ii) Efficient firms are more likely to integrate vertically. As a result, integrated firms also tend to have a large market share. The driving force behind these findings are demand/mark-up complementarities in the product market. We also identify countervailing forces resulting from strong vertical foreclosure, upstream sales and endogenous acquisition costs.

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File URL: http://www.soi.uzh.ch/research/wp/2003/wp0306.pdf
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File Function: Revised version, 2004
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Publisher Info
Paper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number 0306.

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Length: 25 pages
Date of creation: Aug 2003
Date of revision: Nov 2004
Publication status: Published in Advances in Theoretical Economics 5(1), 2005, Article 1
Handle: RePEc:soz:wpaper:0306

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Related research
Keywords: successive oligopolies; vertical integration; effciency; foreclosure;

Other versions of this item:

Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Géarard Gaudet & Ngo Long, 1996. "Vertical Integration, Foreclosure, and profits in the Presence of Double Marginalization," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 5(3), pages 409-432, 09. [Downloadable!] (restricted)
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  3. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November. [Downloadable!] (restricted)
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  7. Rainer Winkelmann, 2002. "Subjektive Daten in der empirischen Wirtschaftsforschung: Probleme und Perspektiven," Working Papers 0207, University of Zurich, Socioeconomic Institute, revised Jul 2002. [Downloadable!]
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  11. Stefan Buehler & Armin Schmutzler & Men-Andri Benz, 2002. "Infrastructure Quality in Deregulated Industries: Is there an Underinvestment Problem?," Working Papers 0209, University of Zurich, Socioeconomic Institute. [Downloadable!]
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  12. Bagwell, Kyle & Staiger, Robert W., 1994. "The sensitivity of strategic and corrective R&D policy in oligopolistic industries," Journal of International Economics, Elsevier, vol. 36(1-2), pages 133-150, February. [Downloadable!] (restricted)
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  13. Susan Athey & Armin Schmutzler, 1995. "Product and Process Flexibility in an Innovative Environment," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 557-574, Winter. [Downloadable!] (restricted)
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  16. Andreas Polk & Armin Schmutzler, 2003. "Lobbying against Environmental Regulation vs. Lobbying for Loopholes," Working Papers 0301, University of Zurich, Socioeconomic Institute. [Downloadable!]
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  17. Jansen, Jos, 2003. "Coexistence of strategic vertical separation and integration," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 699-716, May. [Downloadable!] (restricted)
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  20. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March. [Downloadable!] (restricted)
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  23. Bühler, Stefan & Schmutzler, Armin, 2003. "Who Integrates?," CEPR Discussion Papers 4066, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  24. Zava Aydemir & Stefan Buehler, 2002. "Estimating Vertical Foreclosure in U.S. Gasoline Supply," Working Papers 0212, University of Zurich, Socioeconomic Institute. [Downloadable!]
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  25. Woodruff, Christopher, 2002. "Non-contractible investments and vertical integration in the Mexican footwear industry," International Journal of Industrial Organization, Elsevier, vol. 20(8), pages 1197-1224, October. [Downloadable!] (restricted)
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  28. Vita, Michael G, 2000. "Regulatory Restrictions on Vertical Integration and Control: The Competitive Impact of Gasoline Divorcement Policies," Journal of Regulatory Economics, Springer, vol. 18(3), pages 217-33, November. [Downloadable!] (restricted)
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  31. Thomas Borek & Stefan Buehler & Armin Schmutzler, 2004. "Mergers under Asymmetric Information – Is there a Lemons Problem?," Working Papers 0408, University of Zurich, Socioeconomic Institute. [Downloadable!]
  32. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thomas Borek & Stefan Bühler & Armin Schmutzler, 2008. "Analyzing Mergers under Asymmetric Information: A Simple Reduced-Form Approach," University of St. Gallen Department of Economics working paper series 2008 2008-15, Department of Economics, University of St. Gallen. [Downloadable!]
  2. Anette Boom & Stefan Buehler, 2007. "Restructuring Electricity Markets when Demand is Uncertain: Effects on Capacity Investments, Prices and Welfare," CIE Discussion Papers 2007-09, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
  3. G. Rossini, 2005. "Pitfalls in private and social incentives of vertical crossborder outsourcing," Working Papers 536, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
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