"Explaining Cross-Supplies" (replaces the old version which did not contain the graphs)
AbstractCross-supplies describe the phenomenon that two or more firms in the same industry supply each other with their final products. A prominent example is the cooperation in the European flat glass industry, which was recently criticized by the European Commission. In a simple model we try to explain what incentives firms may have to use cross-supplies (instead of producing the goods themselves) and what welfare effects cross-supplies have if they are used. Contrary to the ruling of the European Commission we find that cross-supplies are welfare improving whenever they are employed. Furthermore, for a large range of parameters, they are even benefiting consumers.
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Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 9603005.
Date of creation: 27 Mar 1996
Date of revision: 06 Apr 1996
Note: FTP submission, ps-file. JEL numbers: L 13, L 22
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- L - Industrial Organization
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