VERTICAL INTEGRATION, MARKET FORECLOSURE AND QUALITY INVESTMENT
Incentives to vertically integrate are studied in an industry where downstream firms are vertically differentiated. Vertical integration by one of the firms increases production costs for the rival. Increased production costs impact quality investment both by the integrated firm and the unintegrated rival. A firm, integrating first, always produces the high quality good and earns higher profits. Quality investment by both firms decreases under any (vertical integration) scenario and competition among downstream firms is softened. 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.
Year of publication: |
2006-02
|
---|---|
Authors: | Hernan, Roberto ; Kujal, Praveen |
Institutions: | Departamento de EconomÃa, Universidad Carlos III de Madrid |
Saved in:
freely available
Saved in favorites
Similar items by person
-
MINIMUM QUALITY LEVELS AND IMPORT TARIFFS
Hernan, Roberto, (2003)
-
IMPORT TARIFFS, QUALITY INVESTMENT AND WELFARE
Hernan, Roberto, (2005)
-
Information asymmetry and deception in the investment game
Clots-Figueras, Irma, (2012)
- More ...