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Market Size and Vertical Structure in the Railway IndustryNoriaki MatsushimaOsaka University - Institute of Social and Economic Research Fumitoshi MizutaniKobe University - Graduate School of Business Administration October 7, 2011 The Institute of Social Economic Research Discussion Paper No. 820 Abstract: We provide a theoretical framework to discuss the relation between market size and vertical structure in the railway industry. The framework is based on a simple downstream monopoly model with two input suppliers, labor forces and the rail infrastructure firm. The operation of the downstream firm (i.e., the train operating firm) generates costs on the rail infrastructure firm. We show that the downstream firm with a larger market size is more likely to integrate with the rail infrastructure firm. This is consistent with the phenomenon in the railway industry.
Number of Pages in PDF File: 24 Keywords: vertical integration, railway industry, market size, vertical coordination JEL Classification: L22, L13, R32 working papers seriesDate posted: October 14, 2011Suggested CitationContact Information
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