Backwards integration and strategic delegation
AbstractWe analyze the effects of downstream firms' acquisition of pure cash flow rights in an efficient upstream supplier when all firms compete in prices. With an acquisition, downstream firms internalize the effects of their actions on their rivals' sales. Double marginalization is enhanced. Whereas full vertical integration would lead to decreasing, passive backwards ownership leads to increasing downstream prices and is more profitable, as long as competition is sufficiently intensive. Downstream acquirers strategically abstain from vertical control, inducing the efficient supplier to commit to high prices. All results are sustained when upstream suppliers are allowed to charge two part tariffs. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 12-022.
Date of creation: 2012
Date of revision:
double marginalization; strategic delegation; vertical integration; partial ownership; common agency;
Other versions of this item:
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-03 (All new papers)
- NEP-BEC-2012-04-03 (Business Economics)
- NEP-COM-2012-04-03 (Industrial Competition)
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