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A bargaining perspective on vertical integration

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  • Hendrik Döpper
  • Geza Sapi
  • Christian Wey

Abstract

We analyze vertical integration incentives in a bilaterally duopolistic industry with bargaining in the input market. Vertical integration incentives are a combination of horizontal integration incentives upstream and downstream and depend on the strength of substitutability and complementarity and the shape of the unit cost function. Under particular circumstances, vertical integration can convey more bargaining power to the merged entity than a horizontal merger to monopoly. In a bidding game for an exogenously determined target firm, a vertical merger can dominate a horizontal one, while pre‐emption does not occur. Une perspective de négociation sur l'intégration verticale. Nous analysons les incitations à l'intégration verticale dans une industrie duopolistique bilatérale avec négociation sur le marché des facteurs de production. Les incitations à l'intégration verticale sont une combinaison des incitations à l'intégration horizontale en amont et en aval et dépendent de la force de la substituabilité/complémentarité et de la forme de la fonction de coût unitaire. Dans certaines circonstances, l'intégration verticale peut conférer à l'entité fusionnée un pouvoir de négociation plus important qu'une fusion horizontale en vue d'un monopole. Dans un jeu d'enchères pour une entreprise dont l'objectif est déterminé de l'extérieur, une fusion verticale peut dominer une fusion horizontale, tandis que la préemption ne se produit pas.

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  • Hendrik Döpper & Geza Sapi & Christian Wey, 2024. "A bargaining perspective on vertical integration," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(1), pages 199-224, February.
    • Handle: RePEc:wly:canjec:v:57:y:2024:i:1:p:199-224
    DOI: 10.1111/caje.12700
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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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