Abstract

http://ssrn.com/abstract=2026987
 


 



Backwards Integration and Strategic Delegation


Matthias Hunold


Centre for European Economic Research (ZEW)

Lars-Hendrik Röller


ESMT European School of Management and Technology; Centre for Economic Policy Research (CEPR); Wissenschaftszentrum Berlin für Sozialforschung (WZB) - Competitiveness and Industrial Change

Konrad O. Stahl


University of Mannheim - Department of Economics; Centre for Economic Policy Research (CEPR)

March 22, 2012

ZEW - Centre for European Economic Research Discussion Paper No. 12-022

Abstract:     
We analyze the effects of downstream firms’ acquisition of pure cash flow rights in an efficient upstream supplier when all firms compete in prices. With an acquisition, downstream firms internalize the effects of their actions on their rivals’ sales. Double marginalization is enhanced. Whereas full vertical integration would lead to decreasing, passive backwards ownership leads to increasing downstream prices and is more profitable, as long as competition is sufficiently intensive. Downstream acquirers strategically abstain from vertical control, inducing the efficient supplier to commit to high prices. All results are sustained when upstream suppliers are allowed to charge two part tariffs.

Number of Pages in PDF File: 27

Keywords: double marginalization, strategic delegation, vertical integration, partial ownership, common agency

JEL Classification: L22, L40

working papers series


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Date posted: March 23, 2012  

Suggested Citation

Hunold, Matthias and Röller, Lars-Hendrik and Stahl, Konrad O., Backwards Integration and Strategic Delegation (March 22, 2012). ZEW - Centre for European Economic Research Discussion Paper No. 12-022. Available at SSRN: http://ssrn.com/abstract=2026987 or http://dx.doi.org/10.2139/ssrn.2026987

Contact Information

Matthias Hunold (Contact Author)
Centre for European Economic Research (ZEW) ( email )
P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany
Lars-Hendrik Röller
ESMT European School of Management and Technology ( email )
Schlossplatz 1
Berlin, 10178
Germany
HOME PAGE: http://www.esmt.org/eng/faculty-research/lars-hendrik-roeller/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Wissenschaftszentrum Berlin für Sozialforschung (WZB) - Competitiveness and Industrial Change ( email )
Reichpietschufer 50
10785 Berlin
Germany
+49 30 2549 1440 (Phone)
+49 30 2549 1442 (Fax)
Konrad O. Stahl
University of Mannheim - Department of Economics ( email )
D-68131 Mannheim
Germany
+49 621 181 1875 (Phone)
+49 621 181 1874 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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