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Economies of depth: Technology, market structure and vertical integration

Author

Listed:
  • Ana Paula MARTINS

    (Universidade Católica Portuguesa , De pa rtme nt of Economics . This research s ta rte d while the a uthor wa s I nvite d Professor a t Faculda de de Economia da Univers ida de Nova de Lis boa , Portugal)

Abstract

I n this pa pe r, a forma l mode l of technology-base dvertica l ma rke t s tructure is inte racte d with diffe re nt e nvironme nts of downs tream a nd ups tream s tra te gic be ha vior. The research is innova tive on four grounds : on the one ha nd, it e xplicitly es ta blishes ma thema tica l conditions for the assess ment of vertical a rra ngeme nts a t the firm leve l, rigorous ly de fining –as a peculia r production (in)e xte rna lity -economies of de pth. Secondly, it provide s e quilibrium a nd we lfa re compa risons of vertica lly inte gra te d a nd non-integra te d or de centra lize d ma rke t s tructures under diffe re nt ass umptions on the inte rvening productive a gents compe titive be haviour –fina l output producers, inte rme dia te product s upplie rs , a nd primary factor owne rs . The e xercises highlight tra nsmiss ion mecha nisms of marke t powe r through inte rme dia teproduct indus tries . The conseque nce of ea ch pa rticula r ma rke t fa ilure is s tudie d inde pe nde ntly (or in a bse nce ) of the othe rs , cons ide ring ce te ris paribus de viations of conduct re la tive to the compe titive pa ra digm of each s ide of a tra nsaction.Thirdly, the a na lys is s ha res a common we ll-de fine d re prese nta tion of the unde rlying technologies , re lying on dua lity a nd othe r production theory prope rties with res pect to factor prices a nd usage –a llowing for s ubs titutability as for comple me ntarity.Fina lly, the role of pre-commitme nt or contra ctua l a rra nge me nts –vertica l res tra int cla uses -is dis cusse d in conne ction to the seque ncing or hie rarchy of the decis ion process . A fina l qua lifica tion of the e ffect uncerta inty in ups tream ma rkets on e quilibrium outcome sis s uggested.

Suggested Citation

  • Ana Paula MARTINS, 2022. "Economies of depth: Technology, market structure and vertical integration," Journal of Economics and Political Economy, EconSciences Journals, vol. 9(1), pages 1-53, March.
    • Handle: RePEc:cvv:journ1:v:9:y:2022:i:1:p:1-53
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • J - Labor and Demographic Economics
    • J - Labor and Demographic Economics

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