Market Structure and the Competitive Effects of Vertical Integration
We analyze the competitive effects of backward vertical integration in a model with oligopolistic firms that exert market power upstream and downstream. In contrast to previous literature, we show that a small degree of vertical integration is always procompetitive because efficiency effects dominate foreclosure effects. Moreover, vertical integration even to monopoly can be procompetitive. With regard to market structure, we find, somewhat surprisingly, that vertical integration is more likely to be procompetitive if the industry is more concentrated. Our model thus suggests that antitrust authorities should be particularly wary of vertical integration in relatively competitive industries. We demonstrate that the quantitative welfare effects can be substantial there.
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"Competition for Scarce Resources,"
Economics Series Working Papers
365, University of Oxford, Department of Economics.
- Lafontaine, Francine & Slade, Margaret, 2007.
"Vertical Integration and Firm Boundaries : The Evidence,"
The Warwick Economics Research Paper Series (TWERPS)
799, University of Warwick, Department of Economics.
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"Vertical Integration, Exclusive Dealing, and Ex Post Cartelization,"
0203-13, Columbia University, Department of Economics.
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- Yongmin Chen, 2000.
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Econometric Society World Congress 2000 Contributed Papers
0383, Econometric Society.
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