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.
The B.E. Journal of Theoretical Economics (BEJTE) is a leading venue for top-notch economic theory, both pure and applied. Topics include contract theory, decision theory, game theory, general equilibrium theory, and mechanism design both pure and applied to such areas as industrial organization, public finance, labor and law and economics.
01 Jan 2001
Yuk-fai Fong, Ronald Peeters, Daniela Puzzello, Javier Rivas and Jan Wenzelburger