Vertical integration under optimal taxation: A consumer surplus detrimental result

Michele Giuranno, Marcella Scrimitore and Giorgos Stamatopoulos

Economics Letters, 2023, vol. 222, issue C

Abstract: Vertical integration in environments without foreclosure, or more generally without any obstacles that restrict competition in the market, and subsidization of firms are two separate mechanisms that have pro-competitive effects. In this paper we show that subsidization can corrode the positive welfare effects of vertical integration, as the latter induces the government to subsidize firms’ output to a lesser extent. This causes an output reduction that lowers consumer surplus.

Keywords: Vertical industry; Integration; Subsidy policy; Consumer surplus (search for similar items in EconPapers)
JEL-codes: H21 L13 L42 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:222:y:2023:i:c:s0165176522003937

DOI: 10.1016/j.econlet.2022.110919

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