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Upstream Competition between Vertically Integrated Firms

  • Marc Bourreau

    (Télécom ParisTech, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)

  • Johan Hombert

    (HEC Paris - GROUPE HEC)

  • Jérôme Pouyet

    (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - École des Ponts ParisTech (ENPC) - CNRS - Centre National de la Recherche Scientifique)

  • Nicolas Schutz

    (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

We propose a model of two-tier competition between vertically integrated firms and unintegrated downstream firms. We show that, even when integrated firms compete in prices to offer a homogeneous input, the Bertrand result may not obtain, and the input may be priced above marginal cost in equilibrium, which is detrimental to consumers' surplus and social welfare. We obtain that these partial foreclosure equilibria are more likely to exist when downstream competition is fierce. We then use our model to assess the impact of several regulatory tools in the telecommunications industry.

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Paper provided by HAL in its series PSE Working Papers with number hal-00440126.

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Date of creation: 07 Jul 2010
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Handle: RePEc:hal:psewpa:hal-00440126
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  1. David E. M Sappington, 2005. "On the Irrelevance of Input Prices for Make-or-Buy Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1631-1638, December.
  2. repec:hal:wpaper:hal-00440126 is not listed on IDEAS
  3. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
  4. Höffler, Felix & Schmidt, Klaus M., 2007. "Two Tales on Resale," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 198, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Lucy White & Volker Nocke, 2004. "Do Vertical Mergers Facilitate Upstream Collusion?," 2004 Meeting Papers 45, Society for Economic Dynamics.
  6. Marc Bourreau & Johan Hombert & Jérôme Pouyet & Nicolas Schutz, 2011. "Upstream Competition between Vertically Integrated Firms," Post-Print hal-00656608, HAL.
  7. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  8. Duarte Brito & Pedro Pereira, 2006. "Access to Bottleneck Inputs under Oligopoly: a Prisoners Dilemma?," Working Papers 16, Portuguese Competition Authority.
  9. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, March.
  10. Sandonis, Joel & Fauli-Oller, Ramon, 2006. "On the competitive effects of vertical integration by a research laboratory," International Journal of Industrial Organization, Elsevier, vol. 24(4), pages 715-731, July.
  11. Ramón Faulí-Oller & Joel Sandonís, 2000. "Welfare Reducing Licensing," Working Papers. Serie AD 2000-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  12. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, March.
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