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Backwards Integration and Strategic Delegation

Author

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  • Stahl, Konrad
  • Röller, Lars-Hendrik
  • Hunold, Matthias

Abstract

We analyze the effects of one or more downstream firms? acquisition of pure cash flow rights in an efficient upstream supplier when firms compete in prices in both markets. With such an acquisition, downstream firms internalize the effects of their actions on that supplier?s and thus, their rivals? sales. Double marginalization is enhanced. While vertical integration would lead to decreasing downstream prices, passive backwards ownership in the efficient supplier leads to increasing downstream prices and is more profitable, as long as competition is sufficiently intensive. Downstream acquirers strategically abstain from vertical control, inducing the efficient upstream firm to commit to a high price. Forbidding upstream price discrimination is then pro-competitive. All results are sustained when upstream suppliers are allowed to charge two part tariffs.

Suggested Citation

  • Stahl, Konrad & Röller, Lars-Hendrik & Hunold, Matthias, 2012. "Backwards Integration and Strategic Delegation," CEPR Discussion Papers 8910, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8910
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    References listed on IDEAS

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    Cited by:

    1. Fiocco, Raffaele, 2016. "The strategic value of partial vertical integration," European Economic Review, Elsevier, vol. 89(C), pages 284-302.
    2. Hunold, Matthias, 2017. "Backward ownership, uniform pricing and entry deterrence," DICE Discussion Papers 250, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Zevgolis Nikolaos E. & Fotis Panagiotis N., 2019. "A Rule of Reason Approach for Passive Minority Interests within the European Union," Review of Law & Economics, De Gruyter, vol. 15(3), pages 1-41, November.
    4. Hunold, Matthias, 2013. "The effects of cartel damage compensations," ZEW Discussion Papers 13-081, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    Common agency; Double marginalization; Partial cross ownership; Strategic delegation; Vertical integration;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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