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Vertical Integration with Complementary Inputs


Markus Reisinger


WHU - Otto Beisheim School of Management; CESifo (Center for Economic Studies and Ifo Institute)

Emanuele Tarantino


University of Mannheim - Department of Economics; Tilburg Law and Economics Center (TILEC)

March 20, 2013

TILEC Discussion Paper No. 2011-004

Abstract:     
We analyze the welfare consequences and the profitability of vertical integration when downstream firms deal with complementary input suppliers holding market power. We find that although single integration is anticompetitive, pairwise integration is often procompetitive and involves below cost pricing at the wholesale level. Moreover, we show that vertical integration is not necessarily profitable, since a complementary input provider extracts part of the greater profits earned by the integrated chain. Contrary to previous literature, this effect is particularly strong if the integrated firm is highly efficient. Finally, we analyze the role of information sharing within an integrated organization.

Number of Pages in PDF File: 49

Keywords: K21, L13, L24, L42

JEL Classification: Vertical Relations, Vertical Integration, Foreclosure, Complementary Inputs, Secret Offers, Pairwise

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Date posted: July 1, 2013  

Suggested Citation

Reisinger, Markus and Tarantino, Emanuele, Vertical Integration with Complementary Inputs (March 20, 2013). TILEC Discussion Paper No. 2011-004. Available at SSRN: http://ssrn.com/abstract=1743483 or http://dx.doi.org/10.2139/ssrn.1743483

Contact Information

Markus Reisinger (Contact Author)
WHU - Otto Beisheim School of Management ( email )
Burgplatz 2
Vallendar, 56179
Germany
00 49 261 6509 290 (Phone)
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Emanuele Tarantino
University of Mannheim - Department of Economics ( email )
D-68131 Mannheim
Germany
Tilburg Law and Economics Center (TILEC) ( email )
Warandelaan 2
Tilburg, 5000 LE
Netherlands
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