Tuesday, October 20, 2009
Posted by D. Daniel Sokol
ABSTRACT: We analyze the competitive eﬀects of backward vertical integration by a partially vertically integrated ﬁrm that competes with non-integrated ﬁrms both upstream and downstream. We show that vertical integration is procompetitive under fairly general conditions. It can be anticompetitive only if the ex ante degree of integration is relatively large. Interestingly, vertical integration is more likely to be anticompetitive if the industry is less concentrated. These results are in line with recent empirical evidence. In addition, we show that even when vertical integration is procompetitive, it is not necessarily welfare enhancing.