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Abstract

Abstract. In this paper, the role of strategic forces in vertical relationships is examined. Using a simplemodel of differentiated products with symmetric demands and costs, the Perfect equilibrium to a verticalintegration-vertical separation game between manufacturers is determined. Given the assumptions ofthe model, I show that the manufacturer-s decision whether to vertically integrate or to remain separatefrom its retailer depends on the degree of product differentiation. I show that when the products arepoor substitutes, the only Perfect equilibrium is vertical integration by both manufacturers. As theproducts become closer substitutes, an additional Perfect equilibrium appears, both firms verticallyseparated. For manufacturers, the vertically separated equilibrium always Pareto dominates the verticalintegration equilibrium when both equilibria exist.



Item Type: MPRA Paper -

Original Title: Vertical Integration versus Vertical Separation: An Equilibrium Model-

Language: English-

Keywords: Vertical integration, vertical separation, differentiated products.-

Subjects: L - Industrial Organization > L0 - GeneralL - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance-





Autor: Cyrenne, Philippe

Fuente: https://mpra.ub.uni-muenchen.de/28746/







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