The strategic value of partial vertical integration

Raffaele Fiocco

Working Papers from Universitat Rovira i Virgili, Department of Economics

Abstract: We investigate the strategic incentives for partial vertical integration, namely, partial ownership agreements between manufacturers and retailers, when retailers privately know their costs and engage in differentiated good price competition. The partial misalignment between the profit objectives within a partially integrated manufacturer-retailer hierarchy entails a higher retail price than under full integration. This `information vertical effect' translates into an opposite `competition horizontal effect': the partially integrated hierarchy's commitment to a higher price induces the competitor to increase its price, which strategically relaxes competition. Our analysis provides implications for vertical merger policy and theoretical support for the recently documented empirical evidence on partial vertical acquisitions. Keywords: asymmetric information, partial vertical integration, vertical mergers, vertical restraints. JEL Classification: D82, L13, L42.

Keywords: Informació -- Aspectes econòmics; Competència econòmica; 33 - Economia (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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http://hdl.handle.net/2072/267267

Related works:
Journal Article: The strategic value of partial vertical integration (2016)
Working Paper: The strategic value of partial vertical integration (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:urv:wpaper:2072/267267

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