DP4066 | Who Integrates?

Publication Date

23/09/2003

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Abstract

We examine vertical backward integration in oligopoly. Analysing a standard linear Cournot model, we find that for wide parameter ranges (i) some firms integrate, while others remain separated, and (ii) efficient firms are more likely to integrate vertically. Adopting a reduced-form approach, we identify a wholesale price effect and demand/mark-up complementarities as the driving forces for our results. We show that our results generalize beyond the Cournot example under fairly natural assumptions.