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On the perils of vertical control by a partial owner of a downstream enterprise

Author

Listed:
  • William J. Baumol
  • Janusz A. Ordover

Abstract

[eng] The paper examines the various cases which can exist in the vertical relation between an upstream enterprise, owner of a bottleneck facility, and a downstream enterprise, obliged to use this facility. It shows that (only) in the case in which the downstream firm is a partial owner to the upstream firm, the possibility exists for a diversion of business, away from the most efficient solution. [fre] Cet article examine les divers cas de figure que peut revêtir la relation verticale entre une entreprise détenant les actifs à titre exclusif et une entreprise de produits finals obligée de faire appel à cette entreprise amont. Il montre que dans le cas (et uniquement dans ce cas) où l'entreprise aval contrôle partiellement l'entreprise amont elle peut détourner une partie de l'activité, au détriment de la solution optimale.

Suggested Citation

  • William J. Baumol & Janusz A. Ordover, 1994. "On the perils of vertical control by a partial owner of a downstream enterprise," Revue d'Économie Industrielle, Programme National Persée, vol. 69(1), pages 7-20.
    • Handle: RePEc:prs:recind:rei_0154-3229_1994_num_69_1_1534
    DOI: 10.3406/rei.1994.1534
    Note: DOI:10.3406/rei.1994.1534
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    Citations

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    Cited by:

    1. Cabral, Luis & Vasconcelos, Helder & Brito, Duarte, 2016. "Competitive Effects of Partial Control in an Input Supplier," CEPR Discussion Papers 11397, C.E.P.R. Discussion Papers.
    2. Daniele Crotti & Claudio Ferrari & Alessio Tei, 2022. "Understanding the impact of demand shocks on the container port industry," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 24(4), pages 778-805, December.
    3. Matthias Hunold & Vasilisa Petrishcheva, 2022. "Foreclosure and Tunneling with Partial Vertical Ownership," CEPA Discussion Papers 57, Center for Economic Policy Analysis.
    4. Hunold, Matthias, 2020. "Non-Discriminatory Pricing, Partial Backward Ownership, and Entry Deterrence," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    5. Alipranti, Maria & Petrakis, Emmanuel & Skartados, Panagiotis, 2022. "On the pro-competitive effects of passive partial backward ownership," Economics Letters, Elsevier, vol. 213(C).
    6. Hunold, Matthias & Petrishcheva, Vasilisa, 2022. "Foreclosure and tunneling with partial vertical ownership," DICE Discussion Papers 391, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    7. Konstantinos G. Papadopoulos & Emmanuel Petrakis & Panagiotis Skartados, 2022. "The ambiguous competitive effects of passive partial forward ownership," Southern Economic Journal, John Wiley & Sons, vol. 89(2), pages 540-568, October.
    8. Li, Jin & Yang, Shilei & Shi, Victor & Zhai, Senjing, 2020. "Partial vertical centralization in competing supply chains," International Journal of Production Economics, Elsevier, vol. 224(C).
    9. Spiegel, Yossi, 2013. "Backward integration, forward integration, and vertical foreclosure," CEPR Discussion Papers 9617, C.E.P.R. Discussion Papers.
    10. Hunold, Matthias, 2017. "Backward ownership, uniform pricing and entry deterrence," DICE Discussion Papers 250, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    11. Ricardo Gonçalves & Peyman Khezr & Flavio Menezes, 2020. "Partial Vertical Ownership with Asymmetric Information," Discussion Papers Series 634, School of Economics, University of Queensland, Australia.
    12. Hunold, Matthias & Schlütter, Frank, 2022. "Supply Contracts under Partial Forward Ownership," LIDAM Discussion Papers CORE 2022003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    13. Hunold, Matthias & Schlütter, Frank, 2019. "Vertical financial interest and corporate influence," DICE Discussion Papers 309, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    14. Matthias Hunold & Shiva Shekhar, 2022. "Supply Chain Innovations and Partial Ownership," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(1), pages 109-145, February.
    15. Papadopoulos, Konstantinos G. & Skartados, Panagiotis, 2021. "The ambiguous competitive effects of passive partial forward integration," UC3M Working papers. Economics 33354, Universidad Carlos III de Madrid. Departamento de Economía.

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