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Vertical Integration, Collusion Downstream, and Partial Market Foreclosure

  • Pedro Mendi

    ()

    (School of Economics and Business Administration, University of Navarra)

This paper proposes a model where an upstream monopolist sells an input to a downstream industry, which may alternatively acquire a perfect substitute for the monopolist's input from a competitive industry. By vertically integrating with a downstream firm, the upstream monopolist may charge a wholesale price above marginal cost, even if the competitive industry is as efficient as the monopolist. This result was not obtained under vertical separation. Furthermore, provided that the number of downstream firms is not too high, the range of values of the discount factor that sustain the monopoly price in the downstream market is enlarged by the introduction of the marked-up wholesale price.

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File URL: http://www.unav.es/facultad/econom/files/workingpapersmodule/@random437a056c22796/1132585579_wp1705.pdf
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Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 17/05.

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Length: 14 pages pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:una:unccee:wp1705
Contact details of provider: Web page: http://www.unav.es/facultad/econom

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  1. Hans-Theo Normann, 2004. "Equilibrium Vertical Foreclosure in the Repeated Game," Industrial Organization 0408008, EconWPA.
  2. Hardt, Michael, 1995. "Market foreclosure without vertical integration," Economics Letters, Elsevier, vol. 47(3-4), pages 423-429, March.
  3. Volker Nocke & Lucy White, 2003. "Do Vertical Mergers Facilitate Upstream Collusion?," PIER Working Paper Archive 03-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  4. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  5. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, Elsevier.
  6. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  7. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Chemla, G., 1999. "Downstream Competition, Foreclosure, and Vertical Integration," Papers 99-18, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
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