Partial Vertical Ownership

45 Pages Posted: 15 Apr 2004

See all articles by Patrick Greenlee

Patrick Greenlee

U.S. Department of Justice - Antitrust Division

Alexander Raskovich

U.S. Department of Justice - Economic Analysis Group

Date Written: April 13, 2004

Abstract

A backward ownership interest held by a downstream firm yields a partial rebate of the upstream margin. Input demand increases with backward ownership, and the upstream firm optimally responds by raising price. With symmetric costs, every downstream firm's equilibrium input/output choice is invariant across a class of ownership profiles, including uniform ownership. Moreover, equity trading results in uniform holdings, so partial vertical ownership may have no real effects. With asymmetric costs ex ante, equity trading amplifies the asymmetries and shifts output toward lower-cost firms. With homogenous goods, this improves producer and total surplus. With differentiated goods, it may harm consumers.

Note: A previous version of this paper can be found at: http://ssrn.com/abstract=278088

Keywords: partial ownership, backward integration, raising rivals' costs, cost dispersion

JEL Classification: L22, D43

Suggested Citation

Greenlee, Patrick and Raskovich, Alexander, Partial Vertical Ownership (April 13, 2004). Available at SSRN: https://ssrn.com/abstract=530623 or http://dx.doi.org/10.2139/ssrn.530623

Patrick Greenlee (Contact Author)

U.S. Department of Justice - Antitrust Division ( email )

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Alexander Raskovich

U.S. Department of Justice - Economic Analysis Group ( email )

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202-514-5847 (Fax)

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