Intimidating Competitors � Endogenous Vertical Integration and Downstream Investment in Successive Oligopoly

Stefan Buehler and Armin Schmutzler

No 409, SOI - Working Papers from Socioeconomic Institute - University of Zurich

Abstract: We examine the interplay of endogenous vertical integration and costreducing downstream investment in successive oligopoly. We start from a linear Cournot model to motivate our more general reducedform framework. For this general framework, we establish the following main results: First, vertical integration increases own investment and decreases competitor investment (intimidation effect). Second, asymmetric equilibria typically involve integrated firms that invest more into effciency than their separated counterparts. Our findings suggest that asymmetric vertical integration is a potential explanation for the initial difference between leader and laggard in investment games.

Keywords: vertically related oligopolies; investment; vertical integration; cost reduction (search for similar items in EconPapers)
JEL-codes: L13 L20 L22 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2004-07, Revised 2005-07
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Published in International Journal of Industrial Organization, 2008, 26(1), 247-265

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https://www.econ.uzh.ch/apps/workingpapers/wp/wp0409.pdf Revised version, 2005 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:soz:wpaper:0409

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