Abstract
Cross-supplies describe the phenomenon that two or more firms in the same industry supply each other with their final products. A prominent example is the cooperation in the European flat-glass industry, which was recently criticized by the European Commission. In a simple model we attempt to explain what incentives firms may have to use cross-supplies (instead of producing the goods themselves) and what welfare effects cross-supplies have if they are used. Contrary to the ruling of the European Commission we find that cross-supplies improve welfare whenever they are employed. Furthermore, for a large range of parameters, they even benefit consumers.
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Baake, P., Oechssler, J. & Schenk, C. Explaining cross-supplies. Zeitschr. f. Nationalökonomie 70, 37–60 (1999). https://doi.org/10.1007/BF01226143
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DOI: https://doi.org/10.1007/BF01226143