Market Structure and the Competitive Effects of Vertical Integration

Simon Loertscher and Markus Reisinger

No 1136, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: We analyze the competitive effects of backward vertical integration in a model with oligopolistic firms that exert market power upstream and downstream. In contrast to previous literature, we show that a small degree of vertical integration is always procompetitive because efficiency effects dominate foreclosure effects. Moreover, vertical integration even to monopoly can be procompetitive. With regard to market structure, we find, somewhat surprisingly, that vertical integration is more likely to be procompetitive if the industry is more concentrated. Our model thus suggests that antitrust authorities should be particularly wary of vertical integration in relatively competitive industries. We demonstrate that the quantitative welfare effects can be substantial there.

Keywords: Vertical Integration; Market Structure; Downstream Oligopsony; Competitive Policy (search for similar items in EconPapers)
JEL-codes: D43 L41 L42 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2011
New Economics Papers: this item is included in nep-bec and nep-com
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Citations: View citations in EconPapers (1)

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Journal Article: Market structure and the competitive effects of vertical integration (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:mlb:wpaper:1136

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