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Equilibrium structures in vertical oligopoly

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  • Abiru, Masahiro
  • Nahata, Babu
  • Raychaudhuri, Subhashis
  • Waterson, Michael

Abstract

The central purpose of this paper is to examine vertical integration as an equilibrium phenomenon. We model it as integration between Cournot oligopolists in both the upstream and the downstream stages. We consider the issue of private profitability versus collective profitability and show that under several situations the equilibrium outcomes may result in a Prisoner's dilemma. The analysis is extended to consider equilibrium outcomes in a dynamic setting, where we find no integration to be a relatively common outcome.
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Suggested Citation

  • Abiru, Masahiro & Nahata, Babu & Raychaudhuri, Subhashis & Waterson, Michael, 1998. "Equilibrium structures in vertical oligopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 37(4), pages 463-480, December.
  • Handle: RePEc:eee:jeborg:v:37:y:1998:i:4:p:463-480
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    1. Greenhut, M L & Ohta, H, 1979. "Vertical Integration of Successive Oligopolists," American Economic Review, American Economic Association, vol. 69(1), pages 137-141, March.
    2. Colangelo, Giuseppe, 1995. "Vertical vs. Horizontal Integration: Pre-emptive Merging," Journal of Industrial Economics, Wiley Blackwell, vol. 43(3), pages 323-337, September.
    3. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    4. Géarard Gaudet & Ngo Long, 1996. "Vertical Integration, Foreclosure, and profits in the Presence of Double Marginalization," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(3), pages 409-432, September.
    5. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Abiru, Masahiro, 1988. "Vertical Integration, Variable Proportions and Successive Oligopolies," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 315-325, March.
    7. Muris, Timothy J & Scheffman, David T & Spiller, Pablo T, 1992. "Strategy and Transaction Costs: The Organization of Distribution in the Carbonated Soft Drink Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 83-128, Spring.
    8. Patrick Bolton & Michael D. Whinston, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 121-148.
    9. Alexander Schrader & Stephen Martin, 1998. "Vertical Market Participation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(3), pages 321-331, June.
    10. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-265, March.
    11. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-142, March.
    12. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
    13. Lin, Y Joseph, 1988. "Oligopoly and Vertical Integration: Note," American Economic Review, American Economic Association, vol. 78(1), pages 251-254, March.
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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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