Vertical Contracting when Competition for Orders Precedes Procurement

22 Pages Posted: 26 Jul 2007

See all articles by Joshua S. Gans

Joshua S. Gans

University of Toronto - Rotman School of Management; NBER

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Abstract

This paper reverses the standard order between input supply negotiations and downstream competition and assumes that competition for orders takes place prior to procurement of inputs in a vertical chain. It is found that oligopolistically competitive outcomes will result despite the presence of an upstream monopolist. Here, vertical integration is a means by which the monopolist can leverage its market power downstream to the detriment of consumers. However, it does so, not by foreclosing on independent downstream firms, but by softening the competitive behaviour of its own integrated units.

Suggested Citation

Gans, Joshua S., Vertical Contracting when Competition for Orders Precedes Procurement. Journal of Industrial Economics, Vol. 55, No. 2, pp. 325-346, June 2007. Available at SSRN: https://ssrn.com/abstract=1003040 or http://dx.doi.org/10.1111/j.1467-6451.2007.00313.x

Joshua S. Gans (Contact Author)

University of Toronto - Rotman School of Management ( email )

Canada

HOME PAGE: http://www.joshuagans.com

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