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Market structure and the competitive effects of vertical integration

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  • Simon Loertscher
  • Markus Reisinger

Abstract

type="main"> We analyze the competitive effects of backward vertical integration when firms exert market power upstream and compete in quantities downstream. Contrasting with previous literature, a small degree of vertical integration is always procompetitive because efficiency gains dominate foreclosure effects, and vertical integration even to full foreclosure can be procompetitive. Interestingly, vertical integration is more likely to be procompetitive if the industry is otherwise more concentrated. Extensions analyze welfare effects of integration and the incentives to integrate. Our analysis suggests that antitrust authorities should be wary of vertical integration when the integrating firm faces many competitors and should be permissive otherwise.

Suggested Citation

  • Simon Loertscher & Markus Reisinger, 2014. "Market structure and the competitive effects of vertical integration," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 471-494, September.
  • Handle: RePEc:bla:randje:v:45:y:2014:i:3:p:471-494
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    File URL: http://hdl.handle.net/10.1111/1756-2171.12058
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    References listed on IDEAS

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    Cited by:

    1. Jérôme Pouyet & Thomas Trégouët, 2016. "Vertical Mergers in Platform Markets," PSE Working Papers halshs-01410077, HAL.
    2. Simon Loertscher & Leslie Marx, 2014. "An Oligopoly Model for Analyzing and Evaluating (Re)-Assignments of Spectrum Licenses," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(3), pages 245-273, November.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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