Competitive Effects of Partial Control in an Input Supplier

24 Pages Posted: 25 Jul 2016

See all articles by Duarte Brito

Duarte Brito

New University of Lisbon

Luis M. B. Cabral

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR)

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP)

Date Written: July 2016

Abstract

Motivated by recent competition policy cases, we study an industry where downstream firms partially own a supplier. If ownership corresponds to control, then consumer surplus is higher and possibly non-monotonic with respect to the ownership share. We provide conditions such that consumers are better off when ownership of the upstream firm is shared by the downstream firms; and when ownership is partial (i.e., less than 100%). These results are based on two effects of partial ownership: first, a vertical-control effect, which effectively reduces the extent of double marginalization; and second, a tunneling effect, whereby the downstream firms use the wholesale price as a means to transfer value from independent upstream shareholders.

Suggested Citation

Brito, Duarte and Cabral, Luis M. B. and Vasconcelos, Helder, Competitive Effects of Partial Control in an Input Supplier (July 2016). CEPR Discussion Paper No. DP11397. Available at SSRN: https://ssrn.com/abstract=2814072

Duarte Brito (Contact Author)

New University of Lisbon ( email )

1099-085 Lisboa, 1099-085
Portugal

Luis M. B. Cabral

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-0858 (Phone)
212-998-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~lcabral

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Dr. Roberto Frias
s/n
4200-464 Porto, 4200-464
Portugal

HOME PAGE: http://www.fep.up.pt/docentes/hvasconcelos

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