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Asymmetric vertical integration


Buehler, Stefan; Schmutzler, Armin (2005). Asymmetric vertical integration. Advances in Theoretical Economics, 5(1):Article 1.

Abstract

We examine vertical backward integration in a reduced-form model of successive oligopolies. Our key findings are: (i) There may be asymmetric equilibria where some firms integrate and others remain separated, even if firms are symmetric initially; (ii) Efficient firms are more likely to integrate vertically. As a result, integrated firms also tend to have a large market share. The driving force behind these findings are demand/mark-up complementarities in the product market. We also identify countervailing forces resulting from strong vertical foreclosure, upstream sales and endogenous acquisition costs.

Abstract

We examine vertical backward integration in a reduced-form model of successive oligopolies. Our key findings are: (i) There may be asymmetric equilibria where some firms integrate and others remain separated, even if firms are symmetric initially; (ii) Efficient firms are more likely to integrate vertically. As a result, integrated firms also tend to have a large market share. The driving force behind these findings are demand/mark-up complementarities in the product market. We also identify countervailing forces resulting from strong vertical foreclosure, upstream sales and endogenous acquisition costs.

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Additional indexing

Item Type:Journal Article, refereed
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2005
Deposited On:11 Feb 2008 12:21
Last Modified:05 Apr 2016 12:17
Publisher:Berkeley Electronic Press
ISSN:1534-5963
Related URLs:http://www.bepress.com/bejte/advances/vol5/iss1/art1/

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