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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 explicitly takes into account persistent 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 in the determination of an integrated firm's interaction with the non-integrated sector of the industry and, in the end, on its relative upstream-downstream specialization. Stylized facts from the world oil industry are used to illustrate the type of behaviour one might expect in this context. On s'intéresse à la détermination du degré de spécialisation amont-aval d'une industrie partiellement intégrée. La situation est modélisée de sorte à pouvoir prendre en compte des différences persistantes de coût de production entre firmes en amont, ce qui est typique de plusieurs industries de ressources naturelles. Le modèle permet de faire ressortir les rôles respectifs des considérations stratégiques et des considérations de coût dans la détermination de l'interaction d'une firme intégrée avec le secteur non intégré de l'industrie et, de ce fait, la détermination de sa spécialisation relative amont-aval. Des faits stylisés tirés de l'industrie pétrolière mondiale viennent illustrer le type de comportement auquel on peut s'attendre dans un tel contexte.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 96s-08.

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Length: 24 pages
Date of creation: 01 Feb 1996
Date of revision:
Handle: RePEc:cir:cirwor:96s-08
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  1. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
  2. 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.
  3. Adelman, M. A., 1991. "User cost in oil production," Resources and Energy, Elsevier, vol. 13(3), pages 217-240, September.
  4. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  5. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. 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, 09.
  7. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-71, May.
  8. 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.
  9. 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.
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