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Excess Entry, Vertical Integration and Welfare

Author

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  • Kühn, Kai-Uwe
  • Vives, Xavier

Abstract

This paper provides a systematic analysis of the welfare effects of vertical integration by a monopolistic input supplier into a monopolistically competitive downstream industry. We give sufficient conditions on consumer preferences that lead to Pareto improving vertical integration. We demonstrate a close relationship between assumptions on preference for variety, excess entry in monopolistically competitive markets, and the welfare effects of vertical integration. Both excess entry and welfare improving vertical integration arise only if preference for variety falls as variety increases for given total output.

Suggested Citation

  • Kühn, Kai-Uwe & Vives, Xavier, 1995. "Excess Entry, Vertical Integration and Welfare," CEPR Discussion Papers 1293, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1293
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    Keywords

    Excess Entry; Preference for Variety; Vertical Integration;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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