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  Vertical Integration, Raising Rivals´ Costs and Upstream Collusion

Normann, H.-T. (2008). Vertical Integration, Raising Rivals´ Costs and Upstream Collusion.

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 Creators:
Normann, Hans-Theo1, Author              
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1Max Planck Institute for Research on Collective Goods, Max Planck Society, ou_2173688              

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 Abstract: This paper analyzes the impact vertical integration has on upstream collusion when the price of the input is linear. As a first step, the paper derives the collusive equilibrium that requires the lowest discount factor in the infinitely repeated game when one firm is vertically integrated. It turns out this is the joint-profit maximum of the colluding firms. The discount factor needed to sustain this equilibrium is then shown to be unambiguously lower than the one needed for collusion in the separated industry. While the previous literature has found it difficult to reconcile raising-rivals-costs strategies following a vertical merger with equilibrium behavior in the static game, they are subgame perfect in the repeated game studied here.

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 Dates: 2008
 Publication Status: Published in print
 Pages: -
 Publishing info: Bonn : Max Planck Institute for Research on Collective Goods
 Table of Contents: -
 Rev. Type: -
 Identifiers: Other: 2008/30
 Degree: -

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