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Vertical Integration, Collusion Downstream, and Partial Market Foreclosure

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Author Info
Pedro Mendi () (School of Economics and Business Administration, University of Navarra)

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Abstract

This paper proposes a model where an upstream monopolist sells an input to a downstream industry, which may alternatively acquire a perfect substitute for the monopolist's input from a competitive industry. By vertically integrating with a downstream firm, the upstream monopolist may charge a wholesale price above marginal cost, even if the competitive industry is as efficient as the monopolist. This result was not obtained under vertical separation. Furthermore, provided that the number of downstream firms is not too high, the range of values of the discount factor that sustain the monopoly price in the downstream market is enlarged by the introduction of the marked-up wholesale price.

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Publisher Info
Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 17/05.

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Length: 14 pages pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:una:unccee:wp1705

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Web page: http://www.unav.es/econom

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Find related papers by JEL classification:
L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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References listed on IDEAS
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  1. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  2. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Hardt, Michael, 1995. "Market foreclosure without vertical integration," Economics Letters, Elsevier, vol. 47(3-4), pages 423-429, March. [Downloadable!] (restricted)
  4. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Blackwell Publishing, vol. 38(113), pages 1-12, January. [Downloadable!] (restricted)
  5. Nocke, Volker & White, Lucy, 2004. "Do Vertical Mergers Facilitate Upstream Collusion?," CEPR Discussion Papers 4186, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. G. Chemla, 1999. "Downstream competition, foreclosure, and vertical integration," THEMA Working Papers 99-18, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
    Other versions:
  7. Hans-Theo Normann, 2004. "Equilibrium Vertical Foreclosure in the Repeated Game," Industrial Organization 0408008, EconWPA. [Downloadable!]
  8. REY, Patrick & TIROLE, Jean, 2003. "A Primer on Foreclosure," IDEI Working Papers 203, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2005. [Downloadable!]
    Other versions:
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