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Extending Market Power through Vertical Integration

Author

Listed:
  • de Fontenay, C.
  • Gans, J.S.

Abstract

This paper derives a model of vertical integration when it is difficult to write binding long-term supply price contracts. Thus, a vertical separated monopolist is vulnerable to hold-up. Without integration, the authors demonstrate that a bottleneck monopolist has an incentive to encourage more firms in a related segment than would arise in a pure monopoly.

Suggested Citation

  • de Fontenay, C. & Gans, J.S., 1999. "Extending Market Power through Vertical Integration," Papers 99/2, New South Wales - School of Economics.
  • Handle: RePEc:fth:nesowa:99/2
    as

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    References listed on IDEAS

    as
    1. Yingyi Qian, 1994. "Incentives and Loss of Control in an Optimal Hierarchy," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 527-544.
    2. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 921-955.
    3. Calvo, Guillermo A & Wellisz, Stanislaw, 1979. "Hierarchy, Ability, and Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 991-1010, October.
    4. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-1059, October.
    5. Green, Francis & Machin, Stephen & Manning, Alan, 1996. "The Employer Size-Wage Effect: Can Dynamic Monopsony Provide an Explanation?," Oxford Economic Papers, Oxford University Press, vol. 48(3), pages 433-455, July.
    6. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
    7. Preston, Alison, 1997. "Where Are We Now with Human Capital Theory in Australia?," The Economic Record, The Economic Society of Australia, vol. 73(220), pages 51-78, March.
    8. Erik Brynjolfsson & Thomas W. Malone & Vijay Gurbaxani & Ajit Kambil, 1994. "Does Information Technology Lead to Smaller Firms?," Management Science, INFORMS, vol. 40(12), pages 1628-1644, December.
    9. Colombo, Massimo G. & Delmastro, Marco, 1999. "Some stylized facts on organization and its evolution," Journal of Economic Behavior & Organization, Elsevier, vol. 40(3), pages 255-274, November.
    10. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 881-919.
    11. Baker, George & Holmstrom, Bengt, 1995. "Internal Labor Markets: Too Many Theories, Too Few Facts," American Economic Review, American Economic Association, vol. 85(2), pages 255-259, May.
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    Citations

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    Cited by:

    1. King, S.P., 2000. "Does Structure Dominate Regulation? The Case of an Input Monopolist," Department of Economics - Working Papers Series 767, The University of Melbourne.
    2. de Fontenay, Catherine C. & Gans, Joshua S., 2004. "Can vertical integration by a monopsonist harm consumer welfare?," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 821-834, June.

    More about this item

    Keywords

    MONOPOLIES ; MARKET STRUCTURE ; VERTICAL INTEGRATION;

    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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