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Partial forward ownership and upstream quality investment

Author

Listed:
  • Ryo Masuyama

    (Graduate School of Economics, Kobe University)

Abstract

Partial forward ownership has been observed in many industries. We consider a linear city in which upstream firms invest in quality. Partial forward ownership increases the quality investment of an owning upstream firm. Although partial forward ownership increases market concentration and consumer transportation costs, consumer surplus increases because of higher quality. In addition, partial forward ownership increases total surplus if the upstream investment technology is efficient. Conversely, partial forward ownership hurts total surplus if the investment technology of upstream firms is inefficient or if they cannot make the investment. Therefore, the desirability of partial forward ownership depends on the efficiency of upstream investment.

Suggested Citation

  • Ryo Masuyama, 2022. "Partial forward ownership and upstream quality investment," Economics Bulletin, AccessEcon, vol. 42(4), pages 1811-1816.
    • Handle: RePEc:ebl:ecbull:eb-22-00443
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    File URL: http://www.accessecon.com/Pubs/EB/2022/Volume42/EB-22-V42-I4-P150.pdf
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    More about this item

    Keywords

    partial ownership; quality investment; vertical relationship; Hotelling model;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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