The strategic value of partial vertical integration

Raffaele Fiocco

European Economic Review, 2016, vol. 89, issue C, 284-302

Abstract: We investigate the strategic incentives for partial vertical integration, namely, partial ownership agreements between manufacturers and retailers, when retailers privately know their costs and engage in price competition with differentiated goods. The partial misalignment between the profit objectives within a partially integrated manufacturer–retailer hierarchy implies a higher retail price than under full integration. This ‘information vertical effect’ translates into a ‘competition horizontal effect’: the partially integrated hierarchy's commitment to a higher price induces the competitor to increase its price, which strategically relaxes competition. Our analysis provides implications for vertical merger policy and theoretical support for the recently documented empirical evidence on partial vertical acquisitions.

Keywords: Asymmetric information; Partial vertical integration; Vertical mergers; Vertical restraints (search for similar items in EconPapers)
JEL-codes: D82 L13 L42 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:89:y:2016:i:c:p:284-302

DOI: 10.1016/j.euroecorev.2016.07.006

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