Does Vertical Separation Necessarily Reduce Quality Discrimination and Increase Welfare?

Duarte Brito, Pedro Pereira and João Vareda ()

The B.E. Journal of Economic Analysis & Policy, 2012, vol. 12, issue 1, 44

Abstract: We investigate whether vertical separation reduces quality discrimination and increases welfare. Consider an industry consisting of a vertically integrated firm, the incumbent, and an independent retailer, the entrant, which requires access to the services of the incumbent's wholesaler. The wholesaler can discriminate against either of the retailers by supplying it an input of lower quality than its rival. We show that, in our setting, vertical separation of the incumbent reduces discrimination against the entrant's retailer, although it does not guarantee non-discrimination. Furthermore, with vertical separation, the wholesaler may discriminate against the incumbent's retailer. Vertical separation impacts social welfare through two effects. First, through the double-marginalization effect, which is negative. Second, through the quality degradation effect, which can be positive or negative. Hence, the net welfare impact of vertical separation is negative or potentially ambiguous.

Keywords: vertical integration; vertical separation; non-price discrimination (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1515/1935-1682.3017 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
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: https://EconPapers.repec.org/RePEc:bpj:bejeap:v:12:y:2012:i:1:p:1-44:n:20

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejeap/html

DOI: 10.1515/1935-1682.3017

Access Statistics for this article

The B.E. Journal of Economic Analysis & Policy is currently edited by Hendrik Jürges and Sandra Ludwig

More articles in The B.E. Journal of Economic Analysis & Policy from De Gruyter
Bibliographic data for series maintained by Peter Golla ().