IDEAS home Printed from https://ideas.repec.org/a/bla/ecorec/v72y1996i217p130-137.html
   My bibliography  Save this article

Convex Costs and the Incentive for Vertical Control

Author

Listed:
  • JOHN S. HEYWOOD
  • DEBASHIS PAL

Abstract

This paper builds on the successive monopoly literature and demonstrates that fixed proportions technology downstream and inelastic final demand are not sufficient to eliminate the incentive for vertical control. As long as downstream marginal costs increase, the incentive remains. Moreover, if the downstream firm can influence the convexity of costs, a social as well as a private incentive for such control exists. This results from the ability of a downstream monopolist to increase its profit on infra‐marginal units by choosing a wasteful technology, a technology which the integrated firm avoids.

Suggested Citation

  • John S. Heywood & Debashis Pal, 1996. "Convex Costs and the Incentive for Vertical Control," The Economic Record, The Economic Society of Australia, vol. 72(217), pages 130-137, June.
    • Handle: RePEc:bla:ecorec:v:72:y:1996:i:217:p:130-137
    DOI: 10.1111/j.1475-4932.1996.tb00947.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1475-4932.1996.tb00947.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1475-4932.1996.tb00947.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Schmalensee, Richard, 1973. "A Note on the Theory of Vertical Integration," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 442-449, Part I, M.
    2. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    3. Vernon, John M & Graham, Daniel A, 1971. "Profitability of Monopolization by Vertical Integration," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 924-925, July-Aug..
    4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    5. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347-347.
    6. Blair, Roger D. & Kaserman, David L., 1983. "Law and Economics of Vertical Integration and Control," Elsevier Monographs, Elsevier, edition 1, number 9780121034801.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christopher S. Yoo, 2017. "Avoiding the Pitfalls of Net Uniformity: Zero Rating and Nondiscrimination," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(4), pages 509-536, June.
    2. Jarrad Harford & Robert Schonlau & Jared Stanfield, 2019. "Trade Relationships, Indirect Economic Links, and Mergers," Management Science, INFORMS, vol. 65(7), pages 3085-3110, July.
    3. Laurent Linnemer, 2022. "Doubling Back on Double Marginalization," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(1), pages 1-19, August.
    4. Sexton, Richard J., 1993. "Noncooperative Game Theory: A Review with Potential Applications to Agricultural Markets," Research Reports 25183, University of Connecticut, Food Marketing Policy Center.
    5. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 33, pages 2145-2220, Elsevier.
    6. Bruno Larue & Olivier Bonroy, 2009. "Seemingly Competitive Food Retail Regulations: Who Do They Really Help?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(3), pages 305-324, September.
    7. Michael A. Salinger, 2021. "The New Vertical Merger Guidelines: Muddying the Waters," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(2), pages 161-176, September.
    8. Saglam, Ismail, 2023. "The Optimal Antitrust Policies for Vertical Price Restraints in a Non-Green Supply Chain," MPRA Paper 117587, University Library of Munich, Germany.
    9. Livio Cricelli & Massimo Mastaldi & Nathan Levialdi, 1999. "Vertical Integration in International Telecommunication System," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(4), pages 337-353, June.
    10. J. Miguel Villas-Boas, 1998. "Product Line Design for a Distribution Channel," Marketing Science, INFORMS, vol. 17(2), pages 156-169.
    11. David Bardey & Giancarlo Buitrago, 2015. "Integración vertical en el sector de la salud colombiano," Documentos CEDE 14069, Universidad de los Andes, Facultad de Economía, CEDE.
    12. Gupta, Barnali & Heywood, John S. & Pal, Debashis, 1995. "Strategic behavior downstream and the incentive to integrate: A spatial model with delivered pricing," International Journal of Industrial Organization, Elsevier, vol. 13(3), pages 327-334, September.
    13. Hyun Jae Doh, 2010. "Multi-Product Retail Competition and Minimum Resale Price Maintenance," Korean Economic Review, Korean Economic Association, vol. 26, pages 361-400.
    14. Donna, Javier D. & Pereira, Pedro & Trindade, Andre & Yoshida, Renan C., 2020. "Direct-to-Consumer Sales by Manufacturers and Bargaining," MPRA Paper 105773, University Library of Munich, Germany.
    15. Thomas Grandner, 2006. "A Note on Franchising and Wage Bargaining," Journal of Economics, Springer, vol. 87(3), pages 281-293, April.
    16. Allen C. Goodman & Miron Stano, 2000. "Hmos and Health Externalities: A Local Public Good Perspective," Public Finance Review, , vol. 28(3), pages 247-269, May.
    17. Kopányi, Dávid, 2017. "The coexistence of stable equilibria under least squares learning," Journal of Economic Behavior & Organization, Elsevier, vol. 141(C), pages 277-300.
    18. David, Maia & Nimubona, Alain-Désiré & Sinclair-Desgagné, Bernard, 2011. "Emission taxes and the market for abatement goods and services," Resource and Energy Economics, Elsevier, vol. 33(1), pages 179-191, January.
    19. Jun Li & Serguei Netessine & Sergei Koulayev, 2018. "Price to Compete … with Many: How to Identify Price Competition in High-Dimensional Space," Management Science, INFORMS, vol. 64(9), pages 4118-4136, September.
    20. Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2009. "Advertising, Competition And Entry In Media Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 7-31, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecorec:v:72:y:1996:i:217:p:130-137. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/esausea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.