Vertical integration, raising rivals' costs and upstream collusion

Arbeitspapier

This paper analyzes the impact vertical integration has on upstream collusion when the price of the input is linear. As a first step, the paper derives the collusive equilibrium that requires the lowest discount factor in the infinitely repeated game when one firm is vertically integrated. It turns out this is the joint-profit maximum of the colluding firms. The discount factor needed to sustain this equilibrium is then shown to be unambiguously lower than the one needed for collusion in the separated industry. While the previous literature has found it difficult to reconcile raising-rivals-costs strategies following a vertical merger with equilibrium behavior in the static game, they are subgame perfect in the repeated game studied here.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Preprints of the Max Planck Institute for Research on Collective Goods ; No. 2008,30

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Oligopoly and Other Imperfect Markets ; Organization of Production ; Antitrust Issues and Policies: General
• Subject: collusion ; foreclosure ; raising rivals' costs ; vertical integration ; Kartell ; Vertikale Konzentration ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Normann, Hans-Theo
• Event: Veröffentlichung
• (who): Max Planck Institute for Research on Collective Goods
• (where): Bonn
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/32208
• Last update: 10.03.2025, 11:45 AM CET