The Ambiguous Competitive Effects of Passive Partial Forward Integration

In a two-tier industry with an upstream monopolist supplier and downstream competition with differentiated goods, we show that passive partial forward integration (PPFI) has ambiguous effects on competition and welfare. When vertical trading is conducted via linear tariffs, PPFI
is pro-competitive and welfare-increasing. While under two-part tariffs, it is anti-competitive and welfare-decreasing. These hold irrespectively of the degree of product differentiation, the observability or secrecy of contract terms, the mode of downstream competition, and the distribution of bargaining power between firms.

Keywords: partial passive forward vertical integration, two-part tariffs, linear tariffs, competition, welfare, bargaining, Cournot duopoly,

JEL Classification: D43, L13

Suggested Citation: Suggested Citation

Papadopoulos, Konstantinos G. and Petrakis, Emmanuel and Skartados, Panagiotis, The Ambiguous Competitive Effects of Passive Partial Forward Integration (September 30, 2021). Available at SSRN: https://ssrn.com/abstract=3933891 or http://dx.doi.org/10.2139/ssrn.3933891