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Upstream-Downstream Specialization by Integrated Firms in a Partially Integrated Industry

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  • Gaudet, Gerard
  • Long, Ngo Van
  • Soubeyran, Antoine

Abstract

We propose a simple model of a partially integrated industry which explicitly takes into account persistent production cost differences across upstream firms, such as one might observe in natural resource industries. The model allows us to highlight the respective roles of strategic considerations and of cost considerations in the determination of an integrated firm's interaction with the non- integrated sector of the industry and, in the end, on its relative upstream-downstream specialization. Stylized facts from the world oil industry are used to illustrate the type of behaviour one might expect in this context.

Suggested Citation

  • Gaudet, Gerard & Long, Ngo Van & Soubeyran, Antoine, 1996. "Upstream-Downstream Specialization by Integrated Firms in a Partially Integrated Industry," Cahiers de recherche 9604, Université Laval - Département d'économique.
    • Handle: RePEc:lvl:laeccr:9604
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    References listed on IDEAS

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    1. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-271, May.
    2. Gaudet, Gerard & Long, Ngo Van, 1994. "On the effects of the distribution of initial endowments in a nonrenewable resource duopoly," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1189-1198, November.
    3. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier.
    4. 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.
    5. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-265, March.
    7. 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.
    8. Adelman, M. A., 1991. "User cost in oil production," Resources and Energy, Elsevier, vol. 13(3), pages 217-240, September.
    9. 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. Ioannis N. Pinopoulos, 2017. "Upstream horizontal mergers and vertical integration," Discussion Paper Series 2017_07, Department of Economics, University of Macedonia, revised Aug 2017.
    2. Arunanondchai, May, 2001. "Can Indonesia Gain from Log Export Barriers?," The Warwick Economics Research Paper Series (TWERPS) 619, University of Warwick, Department of Economics.
    3. Singer, Marcos & Donoso, Patricio, 2008. "Upstream or downstream in the value chain?," Journal of Business Research, Elsevier, vol. 61(6), pages 669-677, June.

    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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