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Intimidating competitors - Endogenous vertical integration and downstream investment in successive oligopoly


Buehler, Stefan; Schmutzler, Armin (2008). Intimidating competitors - Endogenous vertical integration and downstream investment in successive oligopoly. International Journal of Industrial Organization, 26(1):247-265.

Abstract

This paper examines the interplay of endogenous vertical integration and cost-reducing downstream investment in successive oligopoly. Analyzing a linear Cournot model, we establish the following key results: (i) Vertical integration increases own investment and decreases competitor investment (intimidation effect). (ii) Asymmetric integration is a non-degenerate equilibrium outcome. (iii) Compared to a benchmark model without investment, complete vertical separation is a less likely outcome. We argue that these findings generalize beyond the linear Cournot model under reasonable assumptions.

Abstract

This paper examines the interplay of endogenous vertical integration and cost-reducing downstream investment in successive oligopoly. Analyzing a linear Cournot model, we establish the following key results: (i) Vertical integration increases own investment and decreases competitor investment (intimidation effect). (ii) Asymmetric integration is a non-degenerate equilibrium outcome. (iii) Compared to a benchmark model without investment, complete vertical separation is a less likely outcome. We argue that these findings generalize beyond the linear Cournot model under reasonable assumptions.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:January 2008
Deposited On:11 Feb 2008 12:21
Last Modified:06 Dec 2017 13:12
Publisher:Elsevier
ISSN:0167-7187
Publisher DOI:https://doi.org/10.1016/j.ijindorg.2006.11.005

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