Downstream Investment in Oligopoly

Stefan Buehler and Armin Schmutzler

No 310, SOI - Working Papers from Socioeconomic Institute - University of Zurich

Abstract: We examine cost-reducing investment in vertically-related oligopolies, where firms may be vertically integrated or separated. Analyzing a standard linear Cournot model, we show that: (i) Integrated firms invest more than separated competitors. (ii) Vertical integration increases own investment and decreases competitor investment. (iii) Firms may integrate strategically so as to preempt investments by competitors. Adopting a reduced-form approach, we identify demand/mark-up complementarities in the product market as the driving force for these results. We show that our results generalize naturally beyond the Cournot example, and we discuss policy implications.

Keywords: vertically-related oligopolies; investments; vertical integration; cost reduction (search for similar items in EconPapers)
JEL-codes: L13 L22 L40 L82 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2003-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://www.zora.uzh.ch/id/eprint/52182/1/wp0310.pdf First version, 2003 (application/pdf)

Related works:
Working Paper: Downstream Investment In Oligopoly (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:soz:wpaper:0310

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