Managerial Firms, Vertical Integration, and Consumer Welfare

Patrick Legros and Andrew Newman

No 37, Economics Working Papers from Institute for Advanced Study, School of Social Science

Abstract: We show that vertical integration decisions of managers may affect adversely consumers even in the absence of monopoly power in either supply or product markets. This effect is most likely to come about when demand is initially high and there is a negative supply shock or when demand is low and there is a positive demand shock. The results are robust to the introduction of active shareholders and to other extensions.

Pages: 41 pages
Date: 2004-01
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