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"Explaining Cross-Supplies" (replaces the old version which did not contain the graphs)

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Author Info

  • Pio Baake

    (Humboldt University, Berlin)

  • Jorg Oechssler

    (Humboldt University, Berlin)

  • Christoph Schenk

    (Wissenschaftszentrum Berlin)

Abstract

Cross-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 Info

Paper provided by EconWPA in its series Industrial Organization with number 9603005.

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Date of creation: 27 Mar 1996
Date of revision: 06 Apr 1996
Handle: RePEc:wpa:wuwpio:9603005

Note: FTP submission, ps-file. JEL numbers: L 13, L 22
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Web page: http://128.118.178.162

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  1. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
  2. Alexander Schrader & Stephen Martin, 1998. "Vertical Market Participation," Review of Industrial Organization, Springer, vol. 13(3), pages 321-331, June.
  3. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  4. Alan J. Auerbach, 1982. "The Theory of Excess Burden and Optimal Taxation," NBER Working Papers 1025, National Bureau of Economic Research, Inc.
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