Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76134
Authors: 
Buehler, Stefan
Schmutzler, Armin
Year of Publication: 
2003
Series/Report no.: 
Working Paper, Socioeconomic Institute, University of Zurich 0310
Abstract: 
We examine cost-reducing investment in vertically-related oligopolies, where firms may be vertically integrated or separated. Analyzing a standard linear Cournot model, we show that: (i) Integrated firms invest more than separated competitors. (ii) Vertical integration increases own investment and decreases competitor investment. (iii) Firms may integrate strategically so as to preempt investments by competitors. Adopting a reduced-form approach, we identify demand/mark-up complementarities in the product market as the driving force for these results. We show that our results generalize naturally beyond the Cournot example, and we discuss policy implications.
Subjects: 
vertically-related oligopolies
investments
vertical integration
cost reduction
JEL: 
L13
L22
L40
L82
Document Type: 
Working Paper

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