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Vertical integration, bundled discounts and welfare

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  • Maruyama, Masayoshi
  • Minamikawa, Kazumitsu

Abstract

This paper studies firms' incentives for vertical integration and bundled discounts of complementary components. We assume that firms first choose ownership structures and pricing schemes, and then compete on price. We find that vertical integration and mixed bundling is a dominant strategy for all firms, while, except for systems of components that are highly differentiated, total surplus is maximized under independent ownership with bundled discounts. Thus, our model suggests that vertical separation is beneficial for both firms and consumers in such a situation of competitive bundling. Our results have important policy implications for broadband markets.

Suggested Citation

  • Maruyama, Masayoshi & Minamikawa, Kazumitsu, 2009. "Vertical integration, bundled discounts and welfare," Information Economics and Policy, Elsevier, vol. 21(1), pages 62-71, February.
    • Handle: RePEc:eee:iepoli:v:21:y:2009:i:1:p:62-71
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    Cited by:

    1. Halmenschlager, Christine & Mantovani, Andrea, 2017. "On the private and social desirability of mixed bundling in complementary markets with cost savings," Information Economics and Policy, Elsevier, vol. 39(C), pages 45-59.
    2. Noriaki Matsushima & Fumitoshi Mizutani, 2014. "How Does Market Size Affect Vertical Structure When Considering Vertical Coordination? Application to the Railway Industry," Pacific Economic Review, Wiley Blackwell, vol. 19(5), pages 657-676, December.
    3. Noriaki Matsushima & Fumitoshi Mizutani, 2011. "Market Size and Vertical Structure in the Railway Industry," ISER Discussion Paper 0820, Institute of Social and Economic Research, Osaka University.
    4. Matsushima Noriaki & Mizuno Tomomichi, 2012. "Equilibrium Vertical Integration with Complementary Input Markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-32, June.
    5. Matsushima, Noriaki & Mizuno, Tomomichi, 2013. "Vertical separation as a defense against strong suppliers," European Journal of Operational Research, Elsevier, vol. 228(1), pages 208-216.
    6. Noriaki Matsushima & Tomomichi Mizuno, 2010. "How do market structures affect decisions on vertical integration/separation?," ISER Discussion Paper 0770, Institute of Social and Economic Research, Osaka University.
    7. Mihaela STEFAN & Andreea MARIN-PANTELESCU & Mirela TÃœRKES, 2018. "Strategic Management Of The Romanian Telecommunication Services," Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 12(1), pages 451-461, November.
    8. Li, Pei & Tan, Dan & Wang, Guangyong & Wei, Hang & Wu, Jilan, 2021. "Retailer's vertical integration strategies under different business modes," European Journal of Operational Research, Elsevier, vol. 294(3), pages 965-975.

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