How do market structures affect decisions on vertical integration/separation?
We provide a simple model to investigate decisions on vertical integration/separation. The key feature of this model is that more than one input is required for the final products of the local downstream monopolists. Depending on their cost structure, downstream firms' decisions on vertical separation can be both strategic complements and strategic substitutes. As a result, the equilibrium number of vertically integrated firms depends on the cost structure. When the local downstream monopolists merge, vertical separation tends to appear in equilibrium. When an upstream firm can price discriminate, the downstream firms vertically separate. When the downstream firms compete with each other, vertical integration tends to appear if the degree of product differentiation is lower.
|Date of creation:||Feb 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.iser.osaka-u.ac.jp/index-e.html
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gérard Gaudet & Ngo Van Long, 1995.
"Vertical Integration, Foreclosure and Profits in the Presence of Double Marginalisation,"
CIRANO Working Papers
- 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.
- Gérard Gaudet & Ngo Van Long, 1993. "Vertical Integration, Foreclosure and Profits in the Presence of Double Marginalisation," Cahiers de recherche du Département des sciences économiques, UQAM 9308, Université du Québec à Montréal, Département des sciences économiques.
- Matsushima, Noriaki, 2004. "Technology of upstream firms and equilibrium product differentiation," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1091-1114, November.
- Laurent Linnemer, 2003. "Backward Integration by a Dominant Firm," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 12(2), pages 231-259, 06.
- Noriaki Matsushima & Tomomichi Mizuno, 2009.
"Vertical Separation as a Defense against Strong Suppliers,"
ISER Discussion Paper
0755, Institute of Social and Economic Research, Osaka University.
- Matsushima, Noriaki & Mizuno, Tomomichi, 2013. "Vertical separation as a defense against strong suppliers," European Journal of Operational Research, Elsevier, vol. 228(1), pages 208-216.
- Didier Laussel, 2008. "Buying Back Subcontractors: The Strategic Limits of Backward Integration," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(4), pages 895-911, December.
- Rey, Patrick & Tirole, Jean, 2003.
"A Primer on Foreclosure,"
IDEI Working Papers
203, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2005.
- Henrick Horn & Asher Wolinsky, 1988.
"Bilateral Monopolies and Incentives for Merger,"
RAND Journal of Economics,
The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
- Roman Inderst & Tommaso Valletti, 2006.
"Price Discrimination in Input Markets,"
CEIS Research Paper
73, Tor Vergata University, CEIS.
- Barry Nalebuff, 2000. "Competing Against Bundles," Yale School of Management Working Papers ysm157, Yale School of Management.
- Robert H. Gertner & Robert S. Stillman, 2001. "Vertical Integration and Internet Strategies in the Apparel Industry," NBER Chapters, in: E-commerce, pages 417-440 National Bureau of Economic Research, Inc.
- Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-23, March.
- Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
- Ziss, Steffen, 2007. "Hierarchies, intra-firm competition and mergers," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 237-260, April.
- Jansen, Jos, 2003. "Coexistence of strategic vertical separation and integration," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 699-716, May.
- David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99.
- Hugo Sonnenschein, 1968. "The Dual of Duopoly Is Complementary Monopoly: or, Two of Cournot's Theories Are One," Journal of Political Economy, University of Chicago Press, vol. 76, pages 316.
- 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.
- Yoshihiro Yoshida, 2000. "Third-Degree Price Discrimination in Input Markets: Output and Welfare," American Economic Review, American Economic Association, vol. 90(1), pages 240-246, March.
- Gertner, Robert H & Stillman, Robert S, 2001. "Vertical Integration and Internet Strategies in the Apparel Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 417-40, December.
- Ziss, Steffen, 1995. "Vertical Separation and Horizontal Mergers," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 63-75, March.
- Noriaki Matsushima, 2009. "VERTICAL MERGERS AND PRODUCT DIFFERENTIATION -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 57(4), pages 812-834, December.
- Olin, Jack G. & Greis, Noel P. & Kasarda, John D., 1999. "Knowledge management across multi-tier enterprises: the promise of intelligent software in the auto industry," European Management Journal, Elsevier, vol. 17(4), pages 335-347, August.
- Maruyama, Masayoshi & Minamikawa, Kazumitsu, 2009. "Vertical integration, bundled discounts and welfare," Information Economics and Policy, Elsevier, vol. 21(1), pages 62-71, February.
When requesting a correction, please mention this item's handle: RePEc:dpr:wpaper:0770. 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: (Fumiko Matsumoto)
If references are entirely missing, you can add them using this form.