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Vertical integration, technological choice and foreclosure

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  • Eric AVENEL

    (EUREQua, Université de Paris 1 Panthéon-Sorbonne)

Abstract

This article examines why, and how, fiscal decentralization could increase the economic growth rate (the hypothesis is predatory, or "corrupt", govemments). Searching for the optimal level of decentralization, the article first investigates the effects of an horizontal partition of the political power. Two effects will compete : a positive effect due to "proximity" and a negative effect linked to "coordination failures" (for raisons of externalities, small independent régions failed to implement a sufficient level of public spending). Then, the analysis seems to provide a theory of frontiers. But the article also shows that the intervention of a super-center (even corrupted), which centralizes taxes and decentralizes spending, should realize a higher growth rate. In that way, "federalism", which rather is a vertical partition of the political power, is the optimal rule.

Suggested Citation

  • Eric AVENEL, 2000. "Vertical integration, technological choice and foreclosure," Discussion Papers (REL - Recherches Economiques de Louvain) 2000031, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  • Handle: RePEc:ctl:louvre:2000031
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    File URL: http://sites.uclouvain.be/econ/DP/REL/2000031.pdf
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    References listed on IDEAS

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    1. Colangelo, Giuseppe, 1995. "Vertical vs. Horizontal Integration: Pre-emptive Merging," Journal of Industrial Economics, Wiley Blackwell, vol. 43(3), pages 323-337, September.
    2. 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, September.
    3. Reiffen, David, 1992. "Equilibrium Vertical Foreclosure: Comment," American Economic Review, American Economic Association, vol. 82(3), pages 694-697, June.
    4. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. 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.
    6. 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. E. Avenel, 2008. "STRATEGIC VERTICAL INTEGRATION WITHOUT FORECLOSURE -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 247-262, June.

    More about this item

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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