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Upstream Downstream Specialization by Integrated Firms in a Partially Integrated Industry

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  • Gérard Gaudet
  • Ngo Van Long
  • Antoine Soubeyran

Abstract

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.

Suggested Citation

  • Gérard Gaudet & Ngo Van Long & Antoine Soubeyran, 1996. "Upstream Downstream Specialization by Integrated Firms in a Partially Integrated Industry," CIRANO Working Papers 96s-08, CIRANO.
  • Handle: RePEc:cir:cirwor:96s-08
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    File URL: https://cirano.qc.ca/files/publications/96s-08.pdf
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    References listed on IDEAS

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    1. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-271, 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. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    4. 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.
    5. Géarard Gaudet & Ngo Van 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.
    6. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-265, March.
    7. 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.
    8. Adelman, M. A., 1991. "User cost in oil production," Resources and Energy, Elsevier, vol. 13(3), pages 217-240, September.
    9. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
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    Cited by:

    1. Ioannis N. Pinopoulos, 2017. "Upstream horizontal mergers and vertical integration," Discussion Paper Series 2017_07, Department of Economics, University of Macedonia, revised Aug 2017.
    2. Arunanondchai, May, 2001. "Can Indonesia Gain from Log Export Barriers?," The Warwick Economics Research Paper Series (TWERPS) 619, University of Warwick, Department of Economics.
    3. Arunanondchai, May, 2002. "Can Indonesia Gain from Log Export Barriers?," Economic Research Papers 269389, University of Warwick - Department of Economics.
    4. Singer, Marcos & Donoso, Patricio, 2008. "Upstream or downstream in the value chain?," Journal of Business Research, Elsevier, vol. 61(6), pages 669-677, June.

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    More about this item

    Keywords

    Integrated Firms; Specialization; Strategic Interactions; Firmes intégrées; spécialisation; interactions stratégiques;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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