IDEAS home Printed from https://ideas.repec.org/p/bos/iedwpr/dp-276.html
   My bibliography  Save this paper

Demand-Driven Integration and Divorcement Policy

Author

Listed:
  • Patrick Legros

    (Universite libre de Bruxelles (ECARES), Northeastern University and CEPR)

  • Andrew F. Newman

    () (Boston University & CEPR)

Abstract

Traditionally, vertical integration has concerned industrial economists only insofar as it a ects market outcomes, particularly prices. This paper considers reverse causality, from prices and more generally, from demand to integra- tion in a model of a dynamic oligopoly. If integration is costly but enhances productive eciency, then a trend of rising prices and increasing integration could be due to growing demand, in which case a divorcement policy of forced divestiture may be counterproductive. Divorcement can only help consumers if it undermines collusion, but then there are dominating policies. We discuss well-known divorcement episodes in retail gasoline and British beer, as well as other evidence, in light of the model.

Suggested Citation

  • Patrick Legros & Andrew F. Newman, "undated". "Demand-Driven Integration and Divorcement Policy," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-276, Boston University - Department of Economics.
  • Handle: RePEc:bos:iedwpr:dp-276
    as

    Download full text from publisher

    File URL: http://people.bu.edu/afnewman/papers/DDID.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Patrick Legros & Andrew F. Newman, 2013. "A Price Theory of Vertical and Lateral Integration," The Quarterly Journal of Economics, Oxford University Press, vol. 128(2), pages 725-770.
    2. Slade, Margaret E, 1998. "Beer and the Tie: Did Divestiture of Brewer-Owned Public Houses Lead to Higher Beer Prices?," Economic Journal, Royal Economic Society, vol. 108(448), pages 565-602, May.
    3. Oliver Hart & Bengt Holmstrom, 2010. "A Theory of Firm Scope," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 483-513.
    4. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    5. Patrick Legros & Andrew F. Newman, 2014. "Contracts, Ownership, and Industrial Organization: Past and Future," Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(suppl_1), pages 82-117.
    6. Sibley, David S. & Weisman, Dennis L., 1998. "Raising rivals' costs: The entry of an upstream monopolist into downstream markets," Information Economics and Policy, Elsevier, vol. 10(4), pages 451-470, December.
    7. Silke J. Forbes & Mara Lederman, 2010. "Does vertical integration affect firm performance? Evidence from the airline industry," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 765-790, December.
    8. Laura Alfaro & Paola Conconi & Harald Fadinger & Andrew F. Newman, 2016. "Do Prices Determine Vertical Integration?," Review of Economic Studies, Oxford University Press, pages 855-888.
    9. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    10. 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.
    11. Francine Lafontaine & Margaret Slade, 2007. "Vertical Integration and Firm Boundaries: The Evidence," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 629-685, September.
    12. Schinkel, Maarten Pieter & Spiegel, Yossi, 2016. "Can collusion promote sustainable consumption and production?," CEPR Discussion Papers 11102, C.E.P.R. Discussion Papers.
    13. Felix Höffler & Sebastian Kranz, 2011. "Imperfect legal unbundling of monopolistic bottlenecks," Journal of Regulatory Economics, Springer, vol. 39(3), pages 273-292, June.
    14. Slade, Margaret E, 1998. "Strategic Motives for Vertical Separation: Evidence from Retail Gasoline Markets," Journal of Law, Economics, and Organization, Oxford University Press, vol. 14(1), pages 84-113, April.
    15. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    16. Blass, Asher A & Carlton, Dennis W, 2001. "The Choice of Organizational Form in Gasoline Retailing and the Cost of Laws That Limit That Choice," Journal of Law and Economics, University of Chicago Press, vol. 44(2), pages 511-524, October.
    17. John M. Barron & Mark A. Loewenstein & John R. Umbeck, 1985. "Predatory Pricing: The Case Of The Retail Gasoline Market," Contemporary Economic Policy, Western Economic Association International, vol. 3(3), pages 131-139, March.
    18. Volker Nocke, 2007. "Collusion and dynamic (under-) investment in quality," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 227-249, March.
    19. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    20. Barron, John M & Umbeck, John R, 1984. "The Effects of Different Contractual Arrangements: The Case of Retail Gasoline Markets," Journal of Law and Economics, University of Chicago Press, vol. 27(2), pages 313-328, October.
    21. Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, vol. 61(2), pages 112-123, May.
    22. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
    23. Michihiro Kandori, 1991. "Correlated Demand Shocks and Price Wars During Booms," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 171-180.
    24. Fan, Joseph P H & Lang, Larry H P, 2000. "The Measurement of Relatedness: An Application to Corporate Diversification," The Journal of Business, University of Chicago Press, vol. 73(4), pages 629-660, October.
    25. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    26. Silke Januszewski Forbes & Mara Lederman, 2009. "Adaptation and Vertical Integration in the Airline Industry," American Economic Review, American Economic Association, vol. 99(5), pages 1831-1849, December.
    27. Sylvain Chassang & Juan Ortner, 2017. "Collusion in Auctions with Constrained Bids: Theory and Evidence from Public Procurement," Working Papers 072_2015, Princeton University, Department of Economics, Econometric Research Program..
    28. Vita, Michael G, 2000. "Regulatory Restrictions on Vertical Integration and Control: The Competitive Impact of Gasoline Divorcement Policies," Journal of Regulatory Economics, Springer, vol. 18(3), pages 217-233, November.
    29. James Cooper & Luke Froeb & Daniel O'Brien & Michael Vita, 2005. "Vertical Restrictions and Antitrust Policy: What About the Evidence?," CPI Journal, Competition Policy International, vol. 1.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    theory of the rm; reverse causality; vertical integration; OIO; regulation; antitrust;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L5 - Industrial Organization - - Regulation and Industrial Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bos:iedwpr:dp-276. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Program Coordinator). General contact details of provider: http://edirc.repec.org/data/decbuus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.