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Upstream-Downstream Specialization by Integrated Firms in a Partially Integrated Industry

  • Gérard Gaudet
  • Ngo Van Long
  • Antoine Soubeyran

We propose a simple model of a partially integrated industry which explicitely takes into account persistant production cost differences across upstream firms, such as one might observe in natural resource industries. The model allows us to highlight the respective roles of strategic considerations and of cost considerations in the determination of an integrated firm'interaction with the non-integrated sector of the industry and, in the end, on its relative upstream- downstream specialization. Stylized facts from the oil industry are used to illustrate the type of behaviour one might expect in this context.

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Article provided by Springer & The Industrial Organization Society in its journal Review of Industrial Organization.

Volume (Year): 14 (1999)
Issue (Month): 4 (June)
Pages: 321-335

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Handle: RePEc:kap:revind:v:14:y:1999:i:4:p:321-335
DOI: 10.1023/A:1007717513689
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  1. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March.
  2. Gérard Gaudet & Ngo Van Long, 1995. "Vertical Integration, Foreclosure and Profits in the Presence of Double Marginalisation," CIRANO Working Papers 95s-40, CIRANO.
  3. Gaudet, Gerard & Long, Ngo Van, 1994. "On the effects of the distribution of initial endowments in a nonrenewable resource duopoly," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1189-1198, November.
  4. Adelman, M. A., 1991. "User cost in oil production," Resources and Energy, Elsevier, vol. 13(3), pages 217-240, September.
  5. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
  6. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-71, May.
  7. 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.
  8. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  9. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
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