Intimidating Competitors – Endogenous Vertical Integration and Downstream Investment in Successive Oligopoly
AbstractWe examine the interplay of endogenous vertical integration and costreducing downstream investment in successive oligopoly. We start from a linear Cournot model to motivate our more general reducedform framework. For this general framework, we establish the following main results: First, vertical integration increases own investment and decreases competitor investment (intimidation effect). Second, asymmetric equilibria typically involve integrated firms that invest more into effciency than their separated counterparts. Our findings suggest that asymmetric vertical integration is a potential explanation for the initial difference between leader and laggard in investment games.
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Bibliographic InfoPaper provided by University of Zurich, Socioeconomic Institute in its series Working Papers with number 0409.
Length: 28 pages
Date of creation: Jul 2004
Date of revision: Jul 2005
Publication status: Published in International Journal of Industrial Organization, 2008, 26(1), 247-265
vertically related oligopolies; investment; vertical integration; cost reduction;
Other versions of this item:
- Buehler, Stefan & Schmutzler, Armin, 2008. "Intimidating competitors -- Endogenous vertical integration and downstream investment in successive oligopoly," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 247-265, January.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-12 (All new papers)
- NEP-COM-2006-02-12 (Industrial Competition)
- NEP-MIC-2006-02-12 (Microeconomics)
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