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Downstream Investment In Oligopoly

Author

Listed:
  • Stefen Buehler
  • Armin Schmutzler

Abstract

We examine cost-reducing investment in vertically-related oligopolies, where firms may be vertically integrated or separated. Analyzing a standard linear Cournot model, we show that: (i) Integrated firms invest more than separated competitors. (ii) Vertical integration increases own investment and decreases competitor investment. (iii) Firms may integrate strategically so as to preempt investments by competitors. Adopting a reduced-form approach, we identify demand/mark-up complementarities in the product market as the driving force for these results. We show that our results generalize naturally beyond the Cournot example, and we discuss policy implications.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stefen Buehler & Armin Schmutzler, 2004. "Downstream Investment In Oligopoly," Royal Economic Society Annual Conference 2004 9, Royal Economic Society.
    • Handle: RePEc:ecj:ac2004:9
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    Cited by:

    1. Simon Loertscher & Yves Schneider, 2005. "Switching Costs, Firm Size, and Market Structure," Diskussionsschriften dp0515, Universitaet Bern, Departement Volkswirtschaft.
    2. Buehler, Stefan & Schmutzler, Armin, 2008. "Intimidating competitors -- Endogenous vertical integration and downstream investment in successive oligopoly," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 247-265, January.
    3. Schmutzler, Armin & Bühler, Stefan, 2003. "Who Integrates?," CEPR Discussion Papers 4066, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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