Vertical integration, raising rivals' costs and upstream collusion

Hans-Theo Normann ()

European Economic Review, 2009, vol. 53, issue 4, pages 461-480

Abstract: This paper analyzes the impact vertical integration has on upstream collusion when the price of the input is linear. As a first step, the paper derives the collusive equilibrium that requires the lowest discount factor in the infinitely repeated game when one firm is vertically integrated. It turns out this is the joint-profit maximum of the colluding firms. The discount factor needed to sustain this equilibrium is then shown to be unambiguously lower than the one needed for collusion in the separated industry. While the previous literature has found it difficult to reconcile raising-rivals'-costs strategies following a vertical merger with equilibrium behavior in the static game, they are subgame perfect in the repeated game studied here.

Keywords: Collusion; Foreclosure; Raising; rivals'; costs; Vertical; integration (search for similar items in EconPapers)
Date: 2009

Downloads: (external link)
http://www.sciencedirect.com/science/article/B6V64 ... 8a9f49321136a25d6939
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Vertical Integration, Raising Rivals’ Costs and Upstream Collusion (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:eee:eecrev:v:53:y:2009:i:4:p:461-480

Access Statistics for this article

European Economic Review is edited by G. A. Pfann, Z. Eckstein, E. Gal-Or, T. Gylfason and J. Von Hagen

More articles in European Economic Review from Elsevier
Series data maintained by Heidi Boesdal ().