"Explaining Cross-Supplies" (replaces the old version which did not contain the graphs)
Cross-supplies describe the phenomenon that two or more firms in the same industry supply each other with their final products. A prominent example is the cooperation in the European flat glass industry, which was recently criticized by the European Commission. In a simple model we try to explain what incentives firms may have to use cross-supplies (instead of producing the goods themselves) and what welfare effects cross-supplies have if they are used. Contrary to the ruling of the European Commission we find that cross-supplies are welfare improving whenever they are employed. Furthermore, for a large range of parameters, they are even benefiting consumers.
|Date of creation:||27 Mar 1996|
|Date of revision:||06 Apr 1996|
|Note:||FTP submission, ps-file. JEL numbers: L 13, L 22|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
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- John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384.
- Alexander Schrader & Stephen Martin, 1998. "Vertical Market Participation," Review of Industrial Organization, Springer, vol. 13(3), pages 321-331, June.
- Alan J. Auerbach, 1982.
"The Theory of Excess Burden and Optimal Taxation,"
NBER Working Papers
1025, National Bureau of Economic Research, Inc.
- Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
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