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A bargaining perspective on vertical integration

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  • Döpper, Hendrik
  • Sapi, Geza
  • Wey, Christian

Abstract

This paper analyzes vertical integration incentives in a bilaterally duopolistic industry where input market outcomes are determined by bargaining. Vertical integration incentives are a combination of horizontal integration incentives up- and downstream and depend on the strength of substitutability or complementarity and the shape of the unit cost function. In contrast to the widely prevailing view in competition policy, vertical integration can under particular circumstances convey more bargaining power to the merged entity than a horizontal merger to monopoly. In a bidding game for an exogenously determined target firm, a vertical merger can dominate a horizontal one, while pre-emption does not occur.

Suggested Citation

  • Döpper, Hendrik & Sapi, Geza & Wey, Christian, 2022. "A bargaining perspective on vertical integration," DICE Discussion Papers 389, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:389
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    References listed on IDEAS

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    More about this item

    Keywords

    Bargaining; Vertical Mergers; Shapley Value;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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