Demand-Driven Integration and Divorcement Policy

Patrick Legros and Andrew Newman ()
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Andrew Newman: Boston University & CEPR

No dp-276, Boston University - Department of Economics - The Institute for Economic Development Working Papers Series from Boston University - Department of Economics

Abstract: Traditionally, vertical integration has concerned industrial economists only insofar as it a ects market outcomes, particularly prices. This paper considers reverse causality, from prices and more generally, from demand to integra- tion in a model of a dynamic oligopoly. If integration is costly but enhances productive eciency, 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 rm; 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)
Pages: 25
New Economics Papers: this item is included in nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://people.bu.edu/afnewman/papers/DDID.pdf (application/pdf)

Related works:
Journal Article: Demand-driven integration and divorcement policy (2017)
Working Paper: Demand-Driven Integration and Divorcement Policy (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bos:iedwpr:dp-276

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