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Coexistence of Strategic Vertical Separation and Integration

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  • Jos Jansen
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    Abstract

    This paper gives conditions under which vertical separation is chosen by some upstream firms, while vertical integration is chosen by others in the equilibrium of a symmetric model. A vertically separating firm trades off fixed contracting costs against the strategic benefit of writing a (two-part tariff, exclusive dealership) contract with its retailer. Equilibrium coexistence emerges when observable and non-renegotiable contracts are offered to downstream Cournot oligopolists that supply close substitutes. The scope for equilibrium coexistence diminishes when assumptions on contract observability and commitment are relaxed. ZUSAMMENFASSUNG - (Koexistenz von strategischer vertikaler Trennung und Integration) In der Arbeit werden die Bedingungen identifiziert, unter denen im Gleichgewicht eines symmetrischen Modells einige, in der Produktionskette vorgelagerte Firmen vertikale Trennung wählen, während andere sich für vertikale Integration entscheiden. Ein vertikal getrenntes Unternehmen wägt die fixen Vertragskosten gegen den strategischen Vorteil eines Vertrages (mit gespaltenem Tarif und exklusiven Vertriebsrechten) mit dem nachgelagerten Einzelhändler ab. Die Koexistenz der beiden Organisationsformen im Gleichgewicht entsteht, wenn den nachgelagerten Cournot-Oligopolisten, die fast perfekte Substitute produzieren, beobachtbare und nicht nachverhandelbare Verträge angeboten werden. Die Koexistenz der Organisationsformen im Gleichgewicht tritt weniger häufig auf, wenn die Annahmen bezüglich der Beobachtbarkeit der Verträge und der Möglichkeit sich zu binden, gelockert werden.

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    Bibliographic Info

    Paper provided by Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) in its series CIG Working Papers with number FS IV 00-16.

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    Length: 24 pages
    Date of creation: Nov 2000
    Date of revision:
    Publication status: Published in the International Journal of Industrial Organization , Vol. 21(5), May 2003, pp. 699-716.
    Handle: RePEc:wzb:wzebiv:fsiv00-16

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    Related research

    Keywords: Vertical Oligopoly; Contract Costs; Strategic Substitutes;

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