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On the welfare effects of vertical integration: Opportunism vs. double marginalization

Ioannis Pinopoulos

Economics Letters, 2019, vol. 174, issue C, 169-172

Abstract: We investigate the welfare effects of vertical integration by an upstream supplier dealing with two downstream firms through secret linear tariffs. We show that whether vertical integration is anti- or procompetitive depends on the distribution of the bargaining power between firms in the pre-integration case. In particular, when the supplier has all, or at least, higher bargaining power than downstream firms, vertical integration is socially desirable. On the contrary, when downstream firms have all, or at least, higher bargaining power than the supplier, integration is detrimental to society.

Keywords: Vertical relations; Vertical integration; Linear tariffs; Opportunism; Welfare (search for similar items in EconPapers)
JEL-codes: D43 L11 L42 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.econlet.2018.11.023

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