Merge and Compete: Strategic Incentives for Vertical Integration

Filippo Vergara Caffarelli

Rivista di Politica Economica, 2007, vol. 97, issue 5, 203-244

Abstract: Vertical integration followed by quantity competition is studied. In the first stage of the game downstream firms simultaneously decide whether to integrate with one of the upstream suppliers. If firms are not able to observe whether their vertically integrated competitor enters the intermediate-good market then they are indifferent about vertical integration. If the entry choice of the integrated firm is observable then the unique equilibrium involves vertical integration and in-house production of the intermediate good. The importance of entry observability sheds light on the strategic importance of information exchange institutions such as the internet and business fairs.

JEL-codes: L13 L22 (search for similar items in EconPapers)
Date: 2007
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Related works:
Working Paper: Merge and Compete. Strategic incentives for vertical integration (2006)
Working Paper: Merge and compete: strategic incentives to vertical integration (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:rpo:ripoec:v:97:y:2007:i:5:p:203-244

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