Vertikal verbundene Märkte im Raum / Vertical Integration in Spatial Markets
Are there individual and/or overall economic incentives for vertical integration in a two-stage spatial Market? In order to give an answer to this question, we present a model with retail locations arranged at similar distances along a circular line and a monopolistic supplier in the center of the circle. Two cases are discussed in this paper: In the first case, the retailers and the producer are legally and organizationally independent enterprises with isolated individual profit maximization. In the second case, the markets are vertically integrated. It can be shown that in all markets the profits are higher in the second case. Furthermore, in the first case, the higher retail price leads to a lower consumers' surplus and, therefore, to smaller welfare effects than in the second case. In the presented model, there are strong incentives for vertical integration of the firms.
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Volume (Year): 221 (2001)
Issue (Month): 4 (August)
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References listed on IDEAS
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- Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier.
- G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
- Bittlingmayer, George, 1983. "A Model of Vertical Restriction and Equilibrium in Retailing," The Journal of Business, University of Chicago Press, vol. 56(4), pages 477-496, October.
- Gupta, Barnali & Heywood, John S. & Pal, Debashis, 1995. "Strategic behavior downstream and the incentive to integrate: A spatial model with delivered pricing," International Journal of Industrial Organization, Elsevier, vol. 13(3), pages 327-334, September.
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