Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144968
Authors: 
Biancini, Sara
Ettinger, David
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 5933
Abstract: 
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.
Subjects: 
vertical integration
tacit collusion
JEL: 
D43
L13
L40
L42
Document Type: 
Working Paper

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