Thursday, July 5, 2012
Posted by D. Daniel Sokol
Emanuele Bacchiega, University of Bologna - Department of Economics and Olivier Bonroy, Universite de Rennes I - Department of Rural Economy and Management describe Vertical Relations and Number of Channels in Quality-Differentiated Markets.
ABSTRACT: Double marginalization causes inefficiencies in vertical markets. This paper argues that such inefficiencies may be beneficial to final consumers in markets producing vertically differentiated goods. The rationale behind this result is that enhancing efficiency in high-quality supply chains through vertical integration may drive out of the market low-quality ones, thus affecting market structure. As a consequence, restoring-efficiency vertical integration may reduce consumer surplus, even in the absence of foreclosure strategies by the newly integrated firms. From a policy standpoint, our paper suggests that input and/or customer foreclosure should not be considered as the only source of antitrust concern when assessing the effects of vertical integration.