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Equilibrium structures in vertical oligopoly

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Author Info

  • Masahiro Abiru

    (Fukuoka University, Japan)

  • Babu Nahata

    (University of Louisville, USA)

  • Subhashis Raychaudhuri

    (Fukuoka University, Japan)

  • Michael Waterson

    (University of Warwick, UK)

Abstract

The central purpose of this paper is to examine vertical integration as an equilibrium phenomenon. We model it as integration between Cournot oligopolists in both the upstream and the downstream stages. We consider the issue of private profitability versus collective profitability and show that under several situations the equilibrium outcomes may result in a Prisoner's dilemma. The analysis is extended to consider equilibrium outcomes in a dynamic setting, where we find no integration to be a relatively common outcome.

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File URL: http://128.118.178.162/eps/get/papers/0306/0306010.pdf
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Bibliographic Info

Paper provided by EconWPA in its series General Economics and Teaching with number 0306010.

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Length: 18 pages
Date of creation: 26 Jun 2003
Date of revision:
Handle: RePEc:wpa:wuwpgt:0306010

Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on HP/PostScript; pages: 18 ; figures: included/request from author/draw your own
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Web page: http://128.118.178.162

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References

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  1. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  2. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  3. Muris, Timothy J & Scheffman, David T & Spiller, Pablo T, 1992. "Strategy and Transaction Costs: The Organization of Distribution in the Carbonated Soft Drink Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 83-128, Spring.
  4. Bolton, Patrick & Whinston, Michael D, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 121-48, January.
  5. 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.
  6. Gérard Gaudet & Ngo Van Long, 1993. "Vertical Integration, Foreclosure and Profits in the Presence of Double Marginalisation," Cahiers de recherche du Département des sciences économiques, UQAM 9308, Université du Québec à Montréal, Département des sciences économiques.
  7. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Alexander Schrader & Stephen Martin, 1998. "Vertical Market Participation," Review of Industrial Organization, Springer, vol. 13(3), pages 321-331, June.
  9. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
  10. Greenhut, M L & Ohta, H, 1979. "Vertical Integration of Successive Oligopolists," American Economic Review, American Economic Association, vol. 69(1), pages 137-41, March.
  11. Abiru, Masahiro, 1988. "Vertical Integration, Variable Proportions and Successive Oligopolies," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 315-25, March.
  12. Lin, Y Joseph, 1988. "Oligopoly and Vertical Integration: Note," American Economic Review, American Economic Association, vol. 78(1), pages 251-54, March.
  13. Colangelo, Giuseppe, 1995. "Vertical vs. Horizontal Integration: Pre-emptive Merging," Journal of Industrial Economics, Wiley Blackwell, vol. 43(3), pages 323-37, September.
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Citations

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Cited by:
  1. Thépot, Jacques & Netzer, Jean-Luc, 2008. "On the optimality of the full-cost pricing," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 282-292, October.
  2. Stefania Borla, . "Horizontal and Vertial Integration in the Presence of Research Spillovers," Discussion Papers 04/12, Department of Economics, University of York.
  3. Arijit Mukherjee & Udo Broll & Soma Mukherjee, 2009. "The welfare effects of entry: the role of the input market," Journal of Economics, Springer, vol. 98(3), pages 189-201, December.
  4. Arijit Mukherjee, 2002. "Licensing in a Vertically Separated Industry," Keele Economics Research Papers KERP 2002/09, Centre for Economic Research, Keele University.
  5. Stefan Buehler & Justus Haucap, 2003. "Strategic Outsourcing Revisited," SOI - Working Papers 0305, Socioeconomic Institute - University of Zurich.
  6. Zhiyong Yao & Wen Zhou, 2011. "Endogenous Merger Waves in Vertically Related Industries," Working Papers 11-34, NET Institute.
  7. Baake, Pio & Kamecke, Ulrich & Normann, Hans-Theo, 2004. "Vertical foreclosure versus downstream competition with capital precommitment," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 185-192, February.
  8. Ahmad Reza Saboori Memar & Georg Götz, 2013. "R&D Incentives in Vertically Related Markets," MAGKS Papers on Economics 201307, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  9. BELLEFLAMME, Paul & TOULEMONDE, Eric, 2004. "B2B marketplaces : Emergence and entry," CORE Discussion Papers 2004078, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Grandner, Thomas, 2001. "Unions in oligopolistic, vertically connected industries," European Economic Review, Elsevier, vol. 45(9), pages 1723-1740, October.
  11. Thomas Grandner, 2000. "A Note on Unionized Firms' Incentive to Integrate Vertically," Department of Economics Working Papers wuwp070, Vienna University of Economics, Department of Economics.
  12. Atallah, Gamal, 2007. "Monopolization through endogenous vertical mergers," Research in Economics, Elsevier, vol. 61(2), pages 99-104, June.
  13. Feenstra, Robert C. & Huang, Deng-Shing & Hamilton, Gary G., 2003. "A market-power based model of business groups," Journal of Economic Behavior & Organization, Elsevier, vol. 51(4), pages 459-485, August.
  14. Lai, Ching-chong & Chin, Chi-ting & Chang, Shu-hua, 2010. "Vertical separation versus vertical integration in a macroeconomic model with imperfect competition," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 590-602, October.
  15. Bühler, Stefan & Schmutzler, Armin, 2003. "Who Integrates?," CEPR Discussion Papers 4066, C.E.P.R. Discussion Papers.

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