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Market Size and Vertical Integration: Stigler's Hypothesis Reconsidered

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  • Elberfeld, Walter

Abstract

According to Stigler (1951), vertical disintegration should be the typical development in growing industries, vertical integration in declining industries. The basic argument is that firms will spin off production stages subject to increasing returns to scale in response to market growth. This paper re-examines Stigler's hypothesis within an equilibrium model of industrial structure in which the organization of firms is endogenous. Stigler's hypothesis is confirmed when entry into markets is free and firms compete. However, when entry into the intermediate good market is restricted, or intermediate good producers collude, vertical integration increases with market size. Copyright 2002 by Blackwell Publishing Ltd

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  • Elberfeld, Walter, 2002. "Market Size and Vertical Integration: Stigler's Hypothesis Reconsidered," Journal of Industrial Economics, Wiley Blackwell, vol. 50(1), pages 23-42, March.
  • Handle: RePEc:bla:jindec:v:50:y:2002:i:1:p:23-42
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    Citations

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    Cited by:

    1. Timothy Bresnahan & Jonathan Levin, 2012. "Vertical Integration and Market Structure," Introductory Chapters,in: Robert Gibbons & John Roberts (ed.), The Handbook of Organizational Economics Princeton University Press.
    2. Lin, Ping, 2006. "Strategic spin-offs of input divisions," European Economic Review, Elsevier, vol. 50(4), pages 977-993, May.
    3. repec:got:cegedp:20 is not listed on IDEAS
    4. Ioannis Pinopoulos, 2014. "Downstream Market Power and the Lerner Index," Discussion Paper Series 2014_07, Department of Economics, University of Macedonia, revised Nov 2014.
    5. Matsushima Noriaki & Mizuno Tomomichi, 2012. "Equilibrium Vertical Integration with Complementary Input Markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-32, June.
    6. Stefan Buehler & Armin Schmutzler, 2004. "Intimidating Competitors � Endogenous Vertical Integration and Downstream Investment in Successive Oligopoly," SOI - Working Papers 0409, Socioeconomic Institute - University of Zurich, revised Jul 2005.
    7. Thomas Hutzschenreuter & Florian Gröne, 2009. "Changing Vertical Integration Strategies under Pressure from Foreign Competition: The Case of US and German Multinationals," Journal of Management Studies, Wiley Blackwell, vol. 46(2), pages 269-307, March.
    8. Noriaki Matsushima & Tomomichi Mizuno, 2007. "Why do large firms tend to integrate vertically? - asymmetric vertical integration reconsidered -," Discussion Papers 2007-34, Kobe University, Graduate School of Business Administration.
    9. repec:dau:papers:123456789/5841 is not listed on IDEAS
    10. Ahmad Reza Saboori Memar & Georg Götz, 2013. "R&D Incentives in Vertically Related Markets," MAGKS Papers on Economics 201307, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    11. Eckel, Carsten, 2003. "Does globalization lead to specialization?," Center for European, Governance and Economic Development Research Discussion Papers 20, University of Goettingen, Department of Economics.
    12. Buehler, Stefan & Schmutzler, Armin, 2008. "Intimidating competitors -- Endogenous vertical integration and downstream investment in successive oligopoly," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 247-265, January.

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