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Excess Entry, Vertical Integration and Welfare

Author

Listed:
  • Kühn, Kai-Uwe
  • Vives, Xavier

Abstract

This paper provides a systematic analysis of the welfare effects of vertical integration by a monopolistic input supplier into a monopolistically competitive downstream industry. We give sufficient conditions on consumer preferences that lead to Pareto improving vertical integration. We demonstrate a close relationship between assumptions on preference for variety, excess entry in monopolistically competitive markets, and the welfare effects of vertical integration. Both excess entry and welfare improving vertical integration arise only if preference for variety falls as variety increases for given total output.

Suggested Citation

  • Kühn, Kai-Uwe & Vives, Xavier, 1995. "Excess Entry, Vertical Integration and Welfare," CEPR Discussion Papers 1293, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1293
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    Cited by:

    1. Viecens, María Fernanda, 2007. "Pricing strategies in software platforms : video consoles vs. operating systems," UC3M Working papers. Economics we074823, Universidad Carlos III de Madrid. Departamento de Economía.
    2. Swati Dhingra & John Morrow, 2012. "The Impact of Integration on Productivity and Welfare Distortions Under Monopolistic Competition," FIW Working Paper series 088, FIW.
    3. Evgeny Zhelobodko & Sergey Kokovin & Mathieu Parenti & Jacques‐François Thisse, 2012. "Monopolistic Competition: Beyond the Constant Elasticity of Substitution," Econometrica, Econometric Society, vol. 80(6), pages 2765-2784, November.
    4. Federico Boffa & John Panzar, 2012. "Bottleneck co-ownership as a regulatory alternative," Journal of Regulatory Economics, Springer, vol. 41(2), pages 201-215, April.
    5. Gilles Chemla & Gilles Chemla, 2003. "Downstream Competition, Foreclosure and Vertical Integration," Post-Print halshs-00679847, HAL.
    6. PARENTI, Mathieu & ,, 2013. "Large and small firms in a global market: David vs. Goliath," CORE Discussion Papers 2013058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Parenti, Mathieu & Ushchev, Philip & Thisse, Jacques-François, 2017. "Toward a theory of monopolistic competition," Journal of Economic Theory, Elsevier, vol. 167(C), pages 86-115.
    8. Luciano Fanti & Marcella Scrimitore, 2017. "The endogeneous choice of delegation in a duopoly with outsourcing to the rival," Discussion Papers 2017/219, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    9. Inderst, Roman & Wey, Christian, 2003. " Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 1-19, Spring.
    10. repec:clg:wpaper:2015-21 is not listed on IDEAS
    11. Dhingra, Swati & Morrow, John, 2017. "Efficiency in large markets with firm heterogeneity," Research in Economics, Elsevier, vol. 71(4), pages 718-728.
    12. G. Chemla, 1999. "Downstream competition, foreclosure, and vertical integration," THEMA Working Papers 99-18, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    13. repec:eee:ecolet:v:158:y:2017:i:c:p:58-61 is not listed on IDEAS
    14. Keisuke Hattori & Takeshi Yoshikawa, 2016. "Free entry and social inefficiency under co-opetition," Journal of Economics, Springer, vol. 118(2), pages 97-119, June.
    15. repec:sbe:breart:v:22:y:2002:i:1:a:2744 is not listed on IDEAS
    16. Zenger, Hans, 2009. "Successive Monopolies with Endogenous Quality," MPRA Paper 15659, University Library of Munich, Germany.
    17. Toulemonde, Eric, 2017. "Does the market deliver the right technology?," Economics Letters, Elsevier, vol. 150(C), pages 95-98.
    18. Kichko, Sergey, 2017. "Input–output linkages and optimal product diversity," Economics Letters, Elsevier, vol. 158(C), pages 58-61.
    19. Innes, Robert, 2008. "Entry for merger with flexible manufacturing: Implications for competition policy," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 266-287, January.
    20. María Fernanda Viecens, 2009. "Pricing strategies in two-sided platforms: The role of sellers’ competition," Working Papers 2009-11, FEDEA.
    21. repec:eee:inecon:v:110:y:2018:i:c:p:103-118 is not listed on IDEAS
    22. repec:spr:epolit:v:34:y:2017:i:3:d:10.1007_s40888-017-0067-1 is not listed on IDEAS

    More about this item

    Keywords

    Excess Entry; Preference for Variety; Vertical Integration;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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