Working Paper: CEPR ID: DP4066
Authors: Stefan Buehler; Armin Schmutzler
Abstract: We examine vertical backward integration in oligopoly. Analysing a standard linear Cournot model, we find that for wide parameter ranges (i) some firms integrate, while others remain separated, and (ii) efficient firms are more likely to integrate vertically. Adopting a reduced-form approach, we identify a wholesale price effect and demand/mark-up complementarities as the driving forces for our results. We show that our results generalize beyond the Cournot example under fairly natural assumptions.
Keywords: efficiency; foreclosure; vertical integration; vertically-related oligopolies
JEL Codes: L13; L22; L40; L82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm efficiency (D22) | vertical integration (L22) |
| vertical integration (L22) | production costs (D24) |
| vertical integration (L22) | downstream competition (L19) |
| one firm's integration decision (L22) | another firm's market position (L10) |
| firm efficiency (D22) | market share (L17) |
| market share (L17) | vertical integration (L22) |