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Title:Vertical integration, raising rivals' costs and upstream collusion PDF Logo
Authors:Normann, Hans-Theo
Issue Date:2008
Series/Report no.:Preprints of the Max Planck Institute for Research on Collective Goods 2008,30
Abstract: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.
Subjects:collusion
foreclosure
raising rivals' costs
vertical integration
JEL:D43
L13
L23
L40
Document Type:Working Paper
Appears in Collections:Preprints of the Max Planck Institute for Research on Collective Goods

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