Vertical Integration, Collusion Downstream, and Partial Market Foreclosure
WPnull/05 Vertical Integration, Collusion Downstream, and Partial Market Foreclosure
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- Pedro Mendi (Pmendi@unav.es)
School of Economics and Business Administration, University of Navarra
This paper proposes a model where an upstream monopolist sells an input to a downstream industry, which may alternatively acquire a perfect substitute for the monopolist's input from a competitive industry. By vertically integrating with a downstream firm, the upstream monopolist may charge a wholesale price above marginal cost, even if the competitive industry is as efficient as the monopolist. This result was not obtained under vertical separation. Furthermore, provided that the number of downstream firms is not too high, the range of values of the discount factor that sustain the monopoly price in the downstream market is enlarged by the introduction of the marked-up wholesale price.
Classification JEL:L42, L12
Number of Pages:14