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Upstream Competition between Vertically Integrated Firms

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  • Marc Bourreau
  • Johan Hombert
  • Jerome Pouyet
  • Nicolas Schutz

Abstract

We propose a model of two-tier competition between vertically integrated firms and unintegrated downstream firms. We show that, even when integrated firms compete in prices to offer a homogeneous input, the Bertrand result may not obtain, and the input may be priced above marginal cost in equilibrium, which is detrimental to consumers' surplus and social welfare. We obtain that these partial foreclosure equilibria are more likely to exist when downstream competition is fierce. We then use our model to assess the impact of several regulatory tools in the telecommunications industry.
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Suggested Citation

  • Marc Bourreau & Johan Hombert & Jerome Pouyet & Nicolas Schutz, 2011. "Upstream Competition between Vertically Integrated Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 59(4), pages 677-713, December.
    • Handle: RePEc:bla:jindec:v:59:y:2011:i:4:p:677-713
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