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Upstream Competition between Vertically Integrated Firms
Author(s) -
Bourreau Marc,
Hombert Johan,
Pouyet Jerome,
Schutz Nicolas
Publication year - 2011
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/j.1467-6451.2011.00469.x
Subject(s) - downstream (manufacturing) , vertical integration , upstream (networking) , competition (biology) , competitor analysis , industrial organization , foreclosure , homogeneous , marginal cost , business , upstream and downstream (dna) , economics , microeconomics , telecommunications , computer science , marketing , ecology , physics , finance , biology , thermodynamics
We propose a model of two‐tier competition between vertically integrated firms and unintegrated downstream firms. We show that, even when integrated firms compete in prices to offer a homogeneous input, the B ertrand logic may collapse, and the input may be priced above marginal cost in equilibrium. These partial foreclosure equilibria are more likely to exist when downstream competition is fierce or when unintegrated downstream competitors are relatively inefficient. We discuss the impact of several regulatory tools on the competitiveness of the wholesale market.