Vertical Integration and Downstream Collusion

Arbeitspapier

We investigate the effect of a vertical merger on downstream firms’ ability to collude in a repeated game framework. We show that a vertical merger has two main effects. On the one hand, it increases the total collusive profits, increasing the stakes of collusion. On the other hand, it creates an asymmetry between the integrated firm and the unintegrated competitors. The integrated firm, accessing the input at marginal cost, faces higher profits in the deviation phase and in the non cooperative equilibrium, which potentially harms collusion. As we show, the optimal collusive profit-sharing agreement takes care of the increased incentive to deviate of the integrated firm, while optimal punishment erases the difficulty related to the asymmetries in the non cooperative state. As a result, vertical integration generally favors collusion.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5933

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Oligopoly and Other Imperfect Markets ; Antitrust Issues and Policies: General ; Vertical Restraints; Resale Price Maintenance; Quantity Discounts
• Subject: vertical integration ; tacit collusion

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Biancini, Sara ; Ettinger, David
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/144968
• Last update: 2025-03-10T11:42:55+0100