VERTICAL SEPARATION REVISITED

Masaki Nakabayashi ()
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Masaki Nakabayashi: Institute of Social Science, The University of Tokyo, Hongo 7-3-1, Bunkyo, Tokyo 113-0033, Japan

The Singapore Economic Review (SER), 2024, vol. 69, issue 08, 2615-2631

Abstract: A differentiated product is commoditized over time. We investigate the impacts of product commoditization and a change in bargaining power between upstream and downstream firms on the choice between vertical separation and integration. We demonstrate first that vertical separation by the upstream firm dominates vertical integration if and only if the upstream firm’s bargaining power is below a certain threshold. Second, the upstream firm’s gain from vertical separation decreases with its own bargaining power and the degree of product commoditization. Third, however, product commoditization marginally diminishes the loss in the gain from vertical separation due to a higher bargaining power of the upstream firm.

Keywords: Vertical separation; vertical integration; product differentiation; product commoditization; bargaining (search for similar items in EconPapers)
JEL-codes: L13 L22 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S0217590823500467

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