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Demand-Driven Integration and Divorcement Policy

Author

Listed:
  • Patrick Legros

    (Universite libre de Bruxelles (ECARES), Northeastern University and CEPR)

  • Andrew F. Newman

    (Boston University & CEPR)

Abstract

Traditionally, vertical integration has concerned industrial economists only insofar as it a ects market outcomes, particularly prices. This paper considers reverse causality, from prices and more generally, from demand to integra- tion in a model of a dynamic oligopoly. If integration is costly but enhances productive eciency, then a trend of rising prices and increasing integration could be due to growing demand, in which case a divorcement policy of forced divestiture may be counterproductive. Divorcement can only help consumers if it undermines collusion, but then there are dominating policies. We discuss well-known divorcement episodes in retail gasoline and British beer, as well as other evidence, in light of the model.

Suggested Citation

  • Patrick Legros & Andrew F. Newman, "undated". "Demand-Driven Integration and Divorcement Policy," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-276, Boston University - Department of Economics.
    • Handle: RePEc:bos:iedwpr:dp-276
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    File URL: http://people.bu.edu/afnewman/papers/DDID.pdf
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    References listed on IDEAS

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    Cited by:

    1. Stiebale, Joel & Vencappa, Dev, 2022. "Import competition and vertical integration: Evidence from India," Journal of Development Economics, Elsevier, vol. 155(C).
    2. Schinkel, Maarten Pieter & Spiegel, Yossi, 2017. "Can collusion promote sustainable consumption and production?," International Journal of Industrial Organization, Elsevier, vol. 53(C), pages 371-398.

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    More about this item

    Keywords

    theory of the rm; reverse causality; vertical integration; OIO; regulation; antitrust;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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