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Pitfalls in Vertical Arrangements

Quaderni DSE Working Paper No. 709

16 Pages Posted: 23 Sep 2010  

Gianpaolo Rossini

University of Bologna - Department of Economics

Cecilia Vergari

University of Bologna - Department of Economics

Date Written: July 6, 2010

Abstract

A popular way of obtaining essential inputs requires the establishment of an input production joint venture (IPJV) in the upstream (U) section of the vertical chain of production by firms competing and selling …final goods in the downstream (D) section of the vertical chain. In spite of the apparently simple arrangement there are many possible governances for the management of the IPJV according to the ownership structure and to the degree of delegation granted to the IPJV by parent …firms. We explore the best sustainable governance arrangement for the IPJV. We address this question in a duopoly framework and we …find a large area of impossible vertical arrangements associated with technological asymmetry. The most likely governance of the vertical arrangement associated to the IPJV is total independence.

Keywords: Input Production Joint Venture, Horizontal Differentiation, Oligopoly, Delegation, Bargaining

JEL Classification: L24, L42

Suggested Citation

Rossini, Gianpaolo and Vergari, Cecilia, Pitfalls in Vertical Arrangements (July 6, 2010). Quaderni DSE Working Paper No. 709. Available at SSRN: https://ssrn.com/abstract=1681494 or http://dx.doi.org/10.2139/ssrn.1681494

Gianpaolo Rossini (Contact Author)

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39+051+6402607 (Phone)
+39+051+6402664 (Fax)

Cecilia Vergari

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, 40100
Italy

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