Piercarlo Zanchettin
Vertical integration and product differentiation
Zanchettin, Piercarlo; Mukherjee, Arijit
Abstract
We study a new channel of downstream rent extraction through vertical integration: competition for integration. Innovative downstream firms create value and profit opportunities through product differentiation, which however affects an upstream monopolist’s incentive to vertically integrate. By playing the downstream firms against each other for integration, the upstream firm can extract even more than the additional profits generated by the downstream firms’ differentiation activities. To preempt rent extraction, the downstream firms may then reduce differentiation, which reduces social welfare. We show that this social cost of vertical integration is more likely to arise in innovative and competitive industries, and that the competition for integration channel of downstream rent extraction is robust to upstream competition.
Citation
Zanchettin, P., & Mukherjee, A. (2017). Vertical integration and product differentiation. International Journal of Industrial Organization, 55, 25-57. https://doi.org/10.1016/j.ijindorg.2017.07.004
| Journal Article Type | Article |
|---|---|
| Acceptance Date | Jul 24, 2017 |
| Online Publication Date | Sep 7, 2017 |
| Publication Date | 2017-11 |
| Deposit Date | Sep 13, 2017 |
| Publicly Available Date | Sep 8, 2018 |
| Journal | International Journal of Industrial Organization |
| Print ISSN | 0167-7187 |
| Electronic ISSN | 1873-7986 |
| Publisher | Elsevier |
| Peer Reviewed | Peer Reviewed |
| Volume | 55 |
| Pages | 25-57 |
| DOI | https://doi.org/10.1016/j.ijindorg.2017.07.004 |
| Keywords | Vertical integration; Product differentiation; Rent extraction; Product innovation; Market segmentation |
| Public URL | https://nottingham-repository.worktribe.com/output/881339 |
| Publisher URL | http://www.sciencedirect.com/science/article/pii/S0167718717304137 |
| Contract Date | Sep 13, 2017 |
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Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0
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