A Simple Model of Anticompetitive Vertical Integration

Joel Sandonis and Ramón Faulí Oller

No 1134-8984, DFAEII Working Papers from University of the Basque Country - Department of Foundations of Economic Analysis II

Abstract: The result of neutrality of vertical integration for competition postulated by the Chicago School can be supported by a benchmark model with (1) an upstream monopolist, (2) homogeneous goods downstream and (3) observable (two-part tariff) contracts. The result does not hold however, whenever any of the three assumptions is relaxed. In this paper we show first, that in presence of an alternative supply, vertical integration is profitable and leads to anticompetitive market foreclosure; second, under product differentiation, inefficient alternative supplies make vertical integration welfare improving, whereas it is profitable only for\ efficient enough second source supplies. As a consequence, a clear prescription for antitrust emerges: we should not allow for vertical integration.

Keywords: vertical integration; two-part tariff contracts; market foreclosure (search for similar items in EconPapers)
Date: 2003-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://addi.ehu.eus/handle/10810/5720 (application/pdf)

Related works:
Working Paper: A Simple Model of Anticompetitive Vertical Integration (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehu:dfaeii:5720

Ordering information: This working paper can be ordered from
Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

Access Statistics for this paper

More papers in DFAEII Working Papers from University of the Basque Country - Department of Foundations of Economic Analysis II Contact information at EDIRC.
Bibliographic data for series maintained by Alcira Macías Redondo ().