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Vertical Integration, Collusion Downstream, and Partial Market Foreclosure

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  • Pedro Mendi

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

Abstract

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.

Suggested Citation

  • Pedro Mendi, 2005. "Vertical Integration, Collusion Downstream, and Partial Market Foreclosure," Faculty Working Papers 17/05, School of Economics and Business Administration, University of Navarra.
  • Handle: RePEc:una:unccee:wp1705
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    References listed on IDEAS

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    1. Chemla, G., 1999. "Downstream Competition, Foreclosure, and Vertical Integration," Papers 99-18, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
    2. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
    3. Hans-Theo Normann, 2004. "Equilibrium Vertical Foreclosure in the Repeated Game," Industrial Organization 0408008, EconWPA.
    4. Hardt, Michael, 1995. "Market foreclosure without vertical integration," Economics Letters, Elsevier, vol. 47(3-4), pages 423-429, March.
    5. Volker Nocke & Lucy White, 2007. "Do Vertical Mergers Facilitate Upstream Collusion?," American Economic Review, American Economic Association, vol. 97(4), pages 1321-1339, September.
    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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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