Market Size and Vertical Equilibrium in the Context of Successive Cournot Oligopolies

Ivan Dufeu ()
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Ivan Dufeu: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School

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Abstract: This paper illustrates the effect of market size on the decision of whether or not firms should vertically integrate or disintegrate. We use a model of two successive stages of production with Cournot competition in each stage. In this model, firms choose to specialize (either upstream or downstream) or to integrate the two stages, before making their production decisions. The decision of whether or not to integrate or specialize depend on the trade-off between "escaping from" the double marginalization problem or the gain from specializing on the production stage in which the firm is more efficient. We show (using simulations) that more firms choose to be vertically integrated as the valuation of the final product or the number of consumers increase, unless the number of firms increases proportionately

Keywords: successive Cournot oligopoly; double mark-up effect; vertical integration; vertical equilibrium; industry growth (search for similar items in EconPapers)
Date: 2004
Note: View the original document on HAL open archive server: https://hal.science/hal-00581571v1
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Citations: View citations in EconPapers (7)

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