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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 firms simultaneously decide whether to integrate with one of the upstream suppliers. If firms 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.

Suggested Citation

  • Filippo VERGARA CAFFARELLI, 2004. "Merge and Compete: Strategic Incentives To Vertical Integration," Industrial Organization 0402004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0402004
    Note: Type of Document - pdf; prepared on windows; pages: 32; figures: 5
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    1. Filippo Vergara Caffarelli, 2007. "Merge and Compete: Strategic Incentives for Vertical Integration," Rivista di Politica Economica, SIPI Spa, vol. 97(5), pages 203-244, September.

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    More about this item

    Keywords

    Vertical integration; market entry.;

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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