Excess Entry, Vertical Integration, and Welfare

Kai-Uwe Kuhn () and Xavier Vives

RAND Journal of Economics, 1999, vol. 30, issue 4, 575-603

Abstract: This article provides a systematic analysis of the welfare effects of vertical integration by a monopolist input supplier into a monopolistically competitive downstream industry. We give sufficient conditions on consumer preferences that lead to Pareto-improving vertical integration and demonstrate a close relationship between assumptions on preference for variety, excess entry in monopolistically competitive markets, and the welfare effects of vertical integration: Excess entry in downstream markets tends to give rise to Pareto-improving vertical integration. We extend the analysis to vertical oligopoly and access price regulation.

Date: 1999
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Working Paper: Excess Entry, Vertical Integration and Welfare (1995)
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