Contractual inefficiencies within supply chains increase an input price above its marginal cost, therefore they are considered detrimental to consumer surplus. We argue that such inefficiencies may be beneficial to consumers in quality-differentiated markets where the "finiteness property"...

This paper studies competition in a network industry with a stylized two layered network structure, and examines: (i) price and connectivity incentives of the upstream netwoks, and (ii) incentives for vertical integration between an upstream network provider and a downstream firm. The main...

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...

We consider a vertically integrated input monopolist supplying to a differentiated downstream rival. With linear input pricing, at the margin the firm unambiguously wants the rival to expand — unlike standard oligopoly with no supply relationship — for either Cournot or Bertrand competition....

This paper first introduces an approach relying on market games to examine how successive oligopolies do operate between downstream and upstream markets. This approach is then compared with the traditional analysis of oligopolistic interaction in successive markets. The market outcomes resulting...

We examine the interplay of endogenous vertical integration and cost-reducing downstream investment in successive oligopoly. We start from a linear Cournot model to motivate our more general reduced-form framework. For this general framework, we establish the following main results: First,...

We analyze firms' decisions to adopt a vertical integrated or decentralized structure taking into account the characteristics of both the final good competition and the R&D process. We consider two vertical chains, where R&D is conducted by upstream sectors. R&D investment determines the...

We present sufficient conditions for data on an industry's product prices, quantities, and input prices to identify retailers' and manufacturers' vertical supply model. Identification requires nonlinear demand for homogeneous products and multi-product firms with non-constant markups for...

According to conventional wisdom, multinational firms undertake vertical FDI in order to take advantage of cross-border factor cost differences and source the inputs from abroad at better terms. Recent empirical findings though document that this is not always the case. We provide theoretical...

While endogenous merger analysis has been applied to horizontal mergers, the thrust of vertical merger analysis has been based on exogenous mergers. The goal of this paper is to analyze endogenous vertical mergers. I consider a market structure with a downstream monopolist and an oligopolistic...