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Vertical integration, market foreclosure and quality investment
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Orientador(es)
Resumo(s)
We study incentives to vertically integrate in an industry with verti- cally differentiated downstream firms. Vertical integration by one of the firms increases production costs for the rival. Increased production costs negatively affects quality investment both by the integrated firm and the unintegrated rival. Quality investment by both firms decreases under any (vertical inte- gration) scenario. The decrease in quality invesment by both firms softens competition among downstream firms. By integrating first, a firm always produces the high quality good and earns higher profits. A fully integrated industry, with increased product differentiation, is observed in equilibrium. Due to increase in firm profits, social welfare under this structure is greater than under no integration.
Descrição
Palavras-chave
Vertical integration Quality investment Market power Product differentiation
Contexto Educativo
Citação
Hernán González, Roberto e Praveen Kujal (2012). "Vertical integration, market foreclosure and quality investment". Portuguese Economic Journal, 11(1):1-20
Editora
Springer Verlag