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Vertical integration without intrafirm trade

Chrysovalantou Milliou ()

Economics Letters, 2020, vol. 192, issue C

Abstract: This paper shows that a vertically integrated firm has incentives to outsource input production to an equally efficient nonintegrated upstream firm that serves its downstream rival. By outsourcing, it raises both its own and its rivals’ cost and generates softer price competition in the final product market. Both the positive implications of vertical integration on the integrated firm’s profits and its negative implications on consumers and welfare are stronger with outsourcing than with the commonly presumed insourcing.

Keywords: Vertical integration; Two-part tariffs; Raising rivals’ cost; Outsourcing (search for similar items in EconPapers)
JEL-codes: D43 L13 L22 L24 L42 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:192:y:2020:i:c:s016517652030135x

DOI: 10.1016/j.econlet.2020.109180

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