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On the welfare effects of vertical integration: Opportunism vs. double marginalization

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  • Pinopoulos, Ioannis N.

Abstract

We investigate the welfare effects of vertical integration by an upstream supplier dealing with two downstream firms through secret linear tariffs. We show that whether vertical integration is anti- or procompetitive depends on the distribution of the bargaining power between firms in the pre-integration case. In particular, when the supplier has all, or at least, higher bargaining power than downstream firms, vertical integration is socially desirable. On the contrary, when downstream firms have all, or at least, higher bargaining power than the supplier, integration is detrimental to society.

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  • Pinopoulos, Ioannis N., 2019. "On the welfare effects of vertical integration: Opportunism vs. double marginalization," Economics Letters, Elsevier, vol. 174(C), pages 169-172.
    • Handle: RePEc:eee:ecolet:v:174:y:2019:i:c:p:169-172
    DOI: 10.1016/j.econlet.2018.11.023
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    Cited by:

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    More about this item

    Keywords

    Vertical relations; Vertical integration; Linear tariffs; Opportunism; Welfare;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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