DP4066 Who Integrates?
|Author(s):||Stefan Bühler, Armin Schmutzler|
|Publication Date:||September 2003|
|Keyword(s):||efficiency, foreclosure, vertical integration, vertically-related oligopolies|
|JEL(s):||L13, L22, L40, L82|
|Programme Areas:||Industrial Organization|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4066|
We examine vertical backward integration in oligopoly. Analysing a standard linear Cournot model, we find that for wide parameter ranges (i) some firms integrate, while others remain separated, and (ii) efficient firms are more likely to integrate vertically. Adopting a reduced-form approach, we identify a wholesale price effect and demand/mark-up complementarities as the driving forces for our results. We show that our results generalize beyond the Cournot example under fairly natural assumptions.