Demand-driven integration and divorcement policy

Patrick Legros and Andrew F. Newman

International Journal of Industrial Organization, 2017, vol. 53, issue C, 306-325

Abstract: Traditionally, vertical integration has concerned industrial economists only insofar as it affects market outcomes, particularly prices. This paper considers reverse causality, from prices – and more generally, from demand – to integration in a model of a dynamic oligopoly. If integration is costly but enhances productive efficiency, then a trend of rising prices and increasing integration could be due to growing demand, in which case a divorcement policy of forced divestiture may be counterproductive. Divorcement can only help consumers if it undermines collusion, but then there are dominating policies. We discuss well-known divorcement episodes in retail gasoline and British beer, as well as other evidence, in light of the model.

Keywords: Theory of the firm; Reverse causality; Vertical integration; OIO; Regulation; Antitrust (search for similar items in EconPapers)
JEL-codes: D23 D43 L2 L4 L5 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Demand-Driven Integration and Divorcement Policy (2015)
Working Paper: Demand-Driven Integration and Divorcement Policy
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:53:y:2017:i:c:p:306-325

DOI: 10.1016/j.ijindorg.2016.04.007

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