We investigate the strategic incentives for partial vertical integration, namely, partial ownership agreements between manufacturers and retailers, when retailers privately know their costs and engage in price competition with differentiated goods. The partial misalignment between the profit objectives within a partially integrated manufacturer–retailer hierarchy implies a higher retail price than under full integration. This ‘information vertical effect’ translates into a ‘competition horizontal effect’: the partially integrated hierarchy's commitment to a higher price induces the competitor to increase its price, which strategically relaxes competition. Our analysis provides implications for vertical merger policy and theoretical support for the recently documented empirical evidence on partial vertical acquisitions.

(2016). The strategic value of partial vertical integration [journal article - articolo]. In EUROPEAN ECONOMIC REVIEW. Retrieved from http://hdl.handle.net/10446/132085

The strategic value of partial vertical integration

Fiocco, Raffaele
2016-01-01

Abstract

We investigate the strategic incentives for partial vertical integration, namely, partial ownership agreements between manufacturers and retailers, when retailers privately know their costs and engage in price competition with differentiated goods. The partial misalignment between the profit objectives within a partially integrated manufacturer–retailer hierarchy implies a higher retail price than under full integration. This ‘information vertical effect’ translates into a ‘competition horizontal effect’: the partially integrated hierarchy's commitment to a higher price induces the competitor to increase its price, which strategically relaxes competition. Our analysis provides implications for vertical merger policy and theoretical support for the recently documented empirical evidence on partial vertical acquisitions.
articolo
Fiocco, Raffaele
(2016). The strategic value of partial vertical integration [journal article - articolo]. In EUROPEAN ECONOMIC REVIEW. Retrieved from http://hdl.handle.net/10446/132085
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Descrizione: link to the formal publication via its DOI: 10.1016/j.euroecorev.2016.07.006
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10446/132085
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