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The Growth and Welfare Effects of Vertical Separation versus Vertical Integration

Author

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  • Chi-Ting Chin

    (Department of Risk Management and Insurance, Ming Chuan University, Taiwan)

Abstract

Bonanno and Vickers (1988) show that vertical separation is profitable and is of interest to manufacturers collectively, as well as individually, provided that the franchise fees can be used to extract the retailers¡¦ surplus. However, their analysis is derived within the goods market only, and hence ignores the harm caused to the community by the double marginalization. This paper develops a simple endogenous growth model with monopolistic competition, in which both structures of vertical integration and vertical separation can be described, and finds that vertical separation reduces both the balanced growth rate and the social welfare.

Suggested Citation

  • Chi-Ting Chin, 2014. "The Growth and Welfare Effects of Vertical Separation versus Vertical Integration," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 10(2), pages 117-127, July.
    • Handle: RePEc:jec:journl:v:10:y:2014:i:2:p:117-127
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    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Benhabib Jess & Farmer Roger E. A., 1994. "Indeterminacy and Increasing Returns," Journal of Economic Theory, Elsevier, vol. 63(1), pages 19-41, June.
    3. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    4. De Fraja, Gianni, 1999. "Regulation and access pricing with asymmetric information," European Economic Review, Elsevier, vol. 43(1), pages 109-134, January.
    5. Cyrenne, Philippe, 1993. "Vertical Integration versus Vertical Separation: An Equilibrium Model," MPRA Paper 28746, University Library of Munich, Germany.
    6. Gianni De Fraja & Catherine Waddams Price, 1999. "Regulation and Access Pricing: Comparison of Regulated Regimes," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(1), pages 1-16, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    vertical separation; vertical integration; imperfect competition; endogenous growth; social welfare;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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