Vertical Integration, Duopoly and Efficiency Differences

摘要

There is no incentive for vertical integration in a successive duopoly situation where the final products are differentiated and there are efficiency differences in the upstream stage. If still one vertical merger occurs the less efficient upstream duopolist would be integrated with the other identical downstream duopolist. Product differentiation instead of homogeneous goods case leads to different comparative statics with respect to intermediate input demand boost and upstream marginal costs rise. Depending on which upstream firm is integrated with the other identical downstream oligopolist the effects of an increase of the efficiency difference on final good prices and final good market shares are divergent. Regardless of how many firms are merged, vertical integration increases final product output and decreases prices. However, the effects of integration on intermediate input prices are ambiguous.