Asymmetric Vertical Integration

Advances in Theoretical Economics, Vol. 5, No. 1, Article 1, 2005

Posted: 10 Jan 2005

See all articles by Stefan Buehler

Stefan Buehler

University of St. Gallen - SEPS: Economics and Political Sciences

Armin Schmutzler

University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR)

Abstract

We examine vertical backward integration in a reduced-form model of successive oligopolies. Our key findings are: (i) There may be asymmetric equilibria where some firms integrate and others remain separated, even if firms are symmetric initially; (ii) Efficient firms are more likely to integrate vertically. As a result, integrated firms also tend to have a large market share. The driving force behind these findings are demand/mark-up complementarities in the product market. We also identify countervailing forces resulting from strong vertical foreclosure, upstream sales and endogenous acquisition costs.

Keywords: Successive oligopolies, vertical integration, efficiency

JEL Classification: L13, L22, L40, L82

Suggested Citation

Buehler, Stefan and Schmutzler, Armin, Asymmetric Vertical Integration. Advances in Theoretical Economics, Vol. 5, No. 1, Article 1, 2005. Available at SSRN: https://ssrn.com/abstract=645761

Stefan Buehler (Contact Author)

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

FGN-HSG
Varnbuelstr. 19
CH-9000 St. Gallen
Switzerland
+41-71-224-2303 (Phone)

Armin Schmutzler

University of Zurich - Department of Economics ( email )

Z├╝rich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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