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Chapter 3 A Simple Vertical Competition Model: Structure and Performance

Contemporary and Emerging Issues in Trade Theory and Policy

ISBN: 978-0-4445-3190-2, eISBN: 978-1-84950-541-3

ISSN: 1574-8715

Publication date: 2 June 2008

Abstract

This chapter investigates the structure of a simple vertical competition model by exhibiting the competitive links among assemblers, component producers, and integrated firms in a generalization of Cournot's model of the vertical integration by allowing any degree of competition among cohorts. Vertical integration in the model can take place by vertical mergers, forward or backward integration. Vertical integration is highly profitable and always reduces the price of the final product. The cost-raising strategy of an integrated firm buying out unneeded component producers is profitable and detrimental to consumers only if the firm faces no competition from other integrated firms.

Keywords

Citation

Ruffin, R.J. (2008), "Chapter 3 A Simple Vertical Competition Model: Structure and Performance", Marjit, S. and Yu, E.S.H. (Ed.) Contemporary and Emerging Issues in Trade Theory and Policy (Frontiers of Economics and Globalization, Vol. 4), Emerald Group Publishing Limited, Bingley, pp. 49-63. https://doi.org/10.1016/S1574-8715(08)04003-7

Publisher

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Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited