Market Size and Vertical Equilibrium in the Context of Successive Cournot Oligopolies
affiliation not provided to SSRN
February 1, 2004
Cahier de Recherche Working Paper No. 01-2004
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.
Number of Pages in PDF File: 24
Keywords: vertical integration, vertical equilibrium, industry growth, successive Cournot oligopoly, double mark-up effect
JEL Classification: D43, L13, L22working papers series
Date posted: January 12, 2010 ; Last revised: September 5, 2010
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.297 seconds