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Merge and Compete: Strategic Incentives To Vertical Integration

  • Filippo VERGARA CAFFARELLI

Vertical integration followed by quantity competition is studied. The downstream firms simultaneously decide whether to integrate with one of the upstream suppliers. If firms are not able to observe whether the vertically integrated competitor enters the intermediate good market, they are indifferent about vertical integration. However, if it is possible to observe the entry choice of the vertically integrated entity, the unique equilibrium involves vertical integration and in- house production of the intermediate good. The importance of entry's observability sheds light on the strategic importance of information exchange institutions such as the internet and business fairs.

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File URL: http://econwpa.repec.org/eps/io/papers/0402/0402004.pdf
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Paper provided by EconWPA in its series Industrial Organization with number 0402004.

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Length: 32 pages
Date of creation: 23 Feb 2004
Date of revision:
Handle: RePEc:wpa:wuwpio:0402004
Note: Type of Document - pdf; prepared on windows; pages: 32; figures: 5
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Inês CABRAL, 2002. "A Herding Approach to Merger Waves," Economics Working Papers ECO2002/26, European University Institute.
  2. Zilibotti, Fabrizio & Griffith, Rachel & Aghion, Philippe & Acemoglu, Daron, 2010. "Vertical Integration and Technology: Theory and Evidence," Scholarly Articles 4554219, Harvard University Department of Economics.
  3. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
  4. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  5. Francesco Brioschi & Maria Sole Brioschi & Giulio Cainelli, 2002. "From the industrial district to the district group: An insight into the evolution of capitalism in italy1," Regional Studies, Taylor & Francis Journals, vol. 36(9), pages 1037-1052.
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  7. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy?," Harvard Institute of Economic Research Working Papers 1966, Harvard - Institute of Economic Research.
  8. Gianmarco I.P. Ottaviano, 2000. "Ad usum delphini: A Primer in "New Economy Geography"," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 59(1), pages 89-116, April.
  9. Soubeyran, A. & Thisse, J.-F., 1998. "Learning-by-Doing and the Development of Industrial Districts," G.R.E.Q.A.M. 98a26, Universite Aix-Marseille III.
  10. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
  11. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
  12. repec:cup:cbooks:9780521016919 is not listed on IDEAS
  13. Lieberman, Marvin B, 1991. "Determinants of Vertical Integration: An Empirical Test," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 451-66, September.
  14. Dobson, Paul W & Waterson, Michael, 1997. "Countervailing Power and Consumer Prices," Economic Journal, Royal Economic Society, vol. 107(441), pages 418-30, March.
  15. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
  16. Volker Nocke & Lucy White, 2003. "Do Vertical Mergers Facilitate Upstream Collusion? Second Version," PIER Working Paper Archive 05-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 08 Mar 2005.
  17. Sibley, David S. & Weisman, Dennis L., 1998. "Raising rivals' costs: The entry of an upstream monopolist into downstream markets," Information Economics and Policy, Elsevier, vol. 10(4), pages 451-470, December.
  18. Maness, Robert, 1996. "Incomplete contracts and the choice between vertical integration and franchising," Journal of Economic Behavior & Organization, Elsevier, vol. 31(1), pages 101-115, October.
  19. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347.
  20. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
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