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.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia|
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
Web page: http://fbe.unimelb.edu.au/economics
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PIER Working Paper Archive
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"Vertical Integration and Firm Boundaries : The Evidence,"
The Warwick Economics Research Paper Series (TWERPS)
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"Dynamic Merger Review,"
Journal of Political Economy,
University of Chicago Press, vol. 118(6), pages 1201 - 1251.
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"Vertical Integration in the Presence of Upstream Competition,"
Econometric Society 2004 North American Winter Meetings
7, Econometric Society.
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"Competition for scarce resources,"
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"On Vertical Mergers and Their Competitive Effects,"
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- Yongmin Chen, 2000. "On Vertical Mergers and Their Competitive Effects," Econometric Society World Congress 2000 Contributed Papers 0383, Econometric Society.
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