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Intimidating Competitors : Endogenous Vertical Integration and Downstream Investment in Successive Oligopoly

Stefan Bühler & Armin Schmutzler

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abstract This paper examines the interplay of endogenous vertical integration and cost-reducing downstream investment in successive oligopoly. Analyzing a linear Cournot model, we establish the following key results: (i) Vertical integration increases own investment and decreases competitor investment (intimidation effect). (ii) Asymmetric integration is a non-degenerate equilibrium outcome. (iii) Compared to a benchmark model without investment, complete vertical separation is a less likely outcome. We argue that these findings generalize beyond the linear Cournot model under reasonable assumptions.
   
type journal paper
   
keywords Vertically related oligopolies, Investment, Vertical integration, Cost reduction
   
language English
kind of paper journal article
date of appearance 1-1-2008
journal International Journal of Industrial Organization
publisher Elsevier Science
ISSN 0167-7187
volume of journal 26
number of issue 1
page(s) 247-265
review not reviewed
   
citation Bühler, S., & Schmutzler, A. (2008). Intimidating Competitors: Endogenous Vertical Integration and Downstream Investment in Successive Oligopoly. International Journal of Industrial Organization, 26(1), 247-265.