Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, February 13, 2012

Upstream Competition between Vertically Integrated Firms

Posted by D. Daniel Sokol

Marc Bourreau, Telecom ParisTech, CREST has written on Upstream Competition between Vertically Integrated Firms.

ABSTRACT: We propose a model of two‐tier competition between vertically integrated firms and unintegrated downstream firms. We show that, even when integrated firms compete in prices to offer a homogeneous input, the Bertrand logic may collapse, and the input may be priced above marginal cost in equilibrium. These partial foreclosure equilibria are more likely to exist when downstream competition is fierce or when unintegrated downstream competitors are relatively inefficient. We discuss the impact of several regulatory tools on the competitiveness of the wholesale market.

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