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Vertical Separation Revisited

Author

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  • MASAKI NAKABAYASHI

    (Institute of Social Science, The University of Tokyo, Hongo 7-3-1, Bunkyo, Tokyo 113-0033, Japan)

Abstract

A differentiated product is commoditized over time. We investigate the impacts of product commoditization and a change in bargaining power between upstream and downstream firms on the choice between vertical separation and integration. We demonstrate first that vertical separation by the upstream firm dominates vertical integration if and only if the upstream firm’s bargaining power is below a certain threshold. Second, the upstream firm’s gain from vertical separation decreases with its own bargaining power and the degree of product commoditization. Third, however, product commoditization marginally diminishes the loss in the gain from vertical separation due to a higher bargaining power of the upstream firm.

Suggested Citation

  • Masaki Nakabayashi, 2024. "Vertical Separation Revisited," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 69(08), pages 2615-2631, December.
    • Handle: RePEc:wsi:serxxx:v:69:y:2024:i:08:n:s0217590823500467
    DOI: 10.1142/S0217590823500467
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    More about this item

    Keywords

    Vertical separation; vertical integration; product differentiation; product commoditization; bargaining;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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