Does Vertical Integration Promote Downstream Incomplete Collusion? An Evaluation of Static and Dynamic Stability

Article

Abstract

This paper analyzes the impact of vertical integration on the static and dynamic stability of downstream incomplete collusion. It is shown that a vertical merger between an upstream firm and a downstream cartel or fringe firm promotes downstream collusion, under certain conditions on the market size. However, for low downstream market concentration, a vertical merger with a cartel firm hinders collusion. Moreover, a welfare analysis shows that consumer surplus increases with the vertical merger because the merger partially eliminates the double marginalization problem.

Keywords

Vertical integration Collusion Cartel stability 

JEL Classification

L12 L13 L42 D43 

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.FEP-UP, School of Economics and ManagementUniversity of PortoPortoPortugal
  2. 2.FEP-UP and CEF-UPUniversity of PortoPortoPortugal

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