Premium
Vertical vs Horizontal Integration: Pre‐emptive Merging: A Correction
Author(s) -
Colangelo Guiseppe
Publication year - 1997
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00038
Subject(s) - citation , library science , computer science , information retrieval , vertical restraints , vertical integration , horizontal and vertical , operations research , political science , mathematics , law , geography , geodesy , welfare
Eric Avenel has pointed out to me that my proposition 1 (Colangelo [1995, p. 329]) holds only if goods are not very close complements
g > y0:85. In fact, if goods are very close complements, both bidders prefer to see their rival integrating rather than integrating themselves, and both prefer the situation with an integration in which they are not involved to no integration at all. It is possible to check that for g y0:85, pU;m > p > pU and pD;v > pD > pD. Hence there are two equilibria: one in which the upstream bidder bids a strictly positive e while the downstream bidder bids zero (vertical integration takes place); the other in which the upstream bidder bids zero while the downstream bidder bids a strictly positive e (horizontal integration takes place). Both types of integration are thus possible for g y0:85. The essence of the conclusions reached in the paper remains unchanged.