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Competitive Effects of Partial Control in an Input Supplier

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  • Cabral, Luis
  • Vasconcelos, Helder
  • Brito, Duarte

Abstract

Motivated by recent competition policy cases, we study an industry where downstream firms partially own a supplier. If ownership corresponds to control, then consumer surplus is higher and possibly non-monotonic with respect to the ownership share. We provide conditions such that consumers are better off when ownership of the upstream firm is shared by the downstream firms; and when ownership is partial (i.e., less than 100%). These results are based on two effects of partial ownership: first, a vertical-control effect, which effectively reduces the extent of double marginalization; and second, a tunneling effect, whereby the downstream firms use the wholesale price as a means to transfer value from independent upstream shareholders.

Suggested Citation

  • 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.
    • Handle: RePEc:cpr:ceprdp:11397
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    References listed on IDEAS

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    Cited by:

    1. Fang Fang & Baojun Jiang & Jiong Sun, 2023. "Partial vertical ownership in the presence of downstream competition," Production and Operations Management, Production and Operations Management Society, vol. 32(6), pages 1692-1704, June.
    2. Romain Lestage, 2021. "Input price discrimination and non-controlling vertical shareholding," Journal of Regulatory Economics, Springer, vol. 59(3), pages 226-250, June.
    3. Melissa Newham & Jo Seldeslachts & Albert Banal-Estanol, 2018. "Common ownership and market entry: Evidence from the pharmaceutical industry," Working Papers of Department of Management, Strategy and Innovation, Leuven 623896, KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven.
    4. Shekhar, Shiva & Thomes, Tim Paul, 2020. "Passive backward acquisitions and downstream collusion," Economics Letters, Elsevier, vol. 197(C).
    5. Ricardo Gonçalves, 2023. "Backward Partial Vertical Integration Through Private Placement," Journal of Industry, Competition and Trade, Springer, vol. 23(3), pages 101-122, December.
    6. Hunold, Matthias, 2020. "Non-Discriminatory Pricing, Partial Backward Ownership, and Entry Deterrence," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    7. Alipranti, Maria & Petrakis, Emmanuel & Skartados, Panagiotis, 2022. "On the pro-competitive effects of passive partial backward ownership," Economics Letters, Elsevier, vol. 213(C).
    8. 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.
    9. Hunold, Matthias, 2017. "Backward ownership, uniform pricing and entry deterrence," DICE Discussion Papers 250, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    10. 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).
    11. 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).
    12. 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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