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Vertical integration under optimal taxation: A consumer surplus detrimental result

Author

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  • Giuranno, Michele G.
  • Scrimitore, Marcella
  • Stamatopoulos, Giorgos

Abstract

Vertical integration in environments without foreclosure, or more generally without any obstacles that restrict competition in the market, and subsidization of firms are two separate mechanisms that have pro-competitive effects. In this paper we show that subsidization can corrode the positive welfare effects of vertical integration, as the latter induces the government to subsidize firms’ output to a lesser extent. This causes an output reduction that lowers consumer surplus.

Suggested Citation

  • Giuranno, Michele G. & Scrimitore, Marcella & Stamatopoulos, Giorgos, 2023. "Vertical integration under optimal taxation: A consumer surplus detrimental result," Economics Letters, Elsevier, vol. 222(C).
    • Handle: RePEc:eee:ecolet:v:222:y:2023:i:c:s0165176522003937
    DOI: 10.1016/j.econlet.2022.110919
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Vertical industry; Integration; Subsidy policy; Consumer surplus;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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