Thursday, July 9, 2009
Posted by D. Daniel Sokol
Hans Zenger (European Commission) analyzes Successive Monopolies with Endogenous Quality.
ABSTRACT: This paper analyzes the impact of vertical integration on product quality. Contrary to previous findings, it is shown that integration decreases quality in many natural situations. In general, the direction of the quality change is governed by three effects that are isolated in the model. This separation allows an analysis of important special cases like the manufacturer/retailer relationship, the intermediate/final good producer relationship, the deregulation of network infrastructure, and the provision of promotional services through independent distributors.