Chapter 3 A Simple Vertical Competition Model: Structure and Performance

Roy J. Ruffin

A chapter in Contemporary and Emerging Issues in Trade Theory and Policy, 2008, pp 49-63 from Emerald Group Publishing Limited

Abstract: This chapter investigates the structure of a simple vertical competition model by exhibiting the competitive links among assemblers, component producers, and integrated firms in a generalization of Cournot's model of the vertical integration by allowing any degree of competition among cohorts. Vertical integration in the model can take place by vertical mergers, forward or backward integration. Vertical integration is highly profitable and always reduces the price of the final product. The cost-raising strategy of an integrated firm buying out unneeded component producers is profitable and detrimental to consumers only if the firm faces no competition from other integrated firms.

Keywords: Vertical integration; outsourcing; oligopoly (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eme:fegzzz:s1574-8715(08)04003-7

DOI: 10.1016/S1574-8715(08)04003-7

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