Excess Entry, Vertical Integration, and Welfare
Volume: Volume 30, No. 4
Issue: Winter 1999
Pages: pp. 575-603
Authors: Kai-Uwe Kuhn and Xavier Vives
Title: Excess Entry, Vertical Integration, and Welfare
Abstract: This article provides a systematic analysis of the welfare effects of vertical integration by a monopolist input supplier into a monopolistically competitive downstream industry. We give sufficient conditions on consumer preferences that lead to Pareto-improving vertical integration and demonstrate a close relationship between assumptions on preference for variety, excess entry in monopolistically competitive markets, and the welfare effects of vertical integration: Excess entry in downstream markets tends to give rise to Pareto-improving vertical integration. We extend the analysis to vertical oligopoly and access price regulation.
JEL Classification
Monopolization; Horizontal Anticompetitive Practices (L410)
Market Structure, Firm Strategy, and Market Performance: Monopoly
Monopolization Strategies cartels; collusion (L120)
Production, Pricing, and Market Structure; Size and Size Distribution of Firms
Concentration, Product Differentiation, Entry and Exit (L110)
Market Structure and Pricing: Monopoly (D420)
Firm Organization and Market Structure: Markets vs. Hierarchies; Vertical Integration (L220)
Entry
Monopolists
Vertical Integration