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Authors
Advisor(s)
Abstract(s)
We analyse the market impact of a partial vertical integration whereby a subset
of retail rms acquire, through a private placement operation, a non-controlling stake
in the capital of an upstream rm, which supplies an essential input. In addition,
we assume that this upstream rm can price discriminate between two groups of retail
rms: the retail rms which (now) own a stake in its capital and all of their retail rivals.
We nd that price discrimination is optimal and, compared to a vertical separation
scenario, there is input foreclosure, a higher retail price and lower social welfare, which
suggests that, from a competition policy viewpoint, such partial vertical integrations
should be analysed with particular concern. However, conducting a private placement
operation of the upstream rm s capital yields gains from trade and we are able to
identify the optimal characteristics of such an operation.
Description
Keywords
Private placement Partial vertical integration Input foreclosure Price discrimination
Pedagogical Context
Citation
GONÇALVES, Ricardo - Backward partial vertical integration through private placement. In 8th Annual Meeting of the Portuguese Economic Journal, Minho, Portugal, 4-5 July 2014. - In 8th Annual Meeting of the Portuguese Economic Journal Programme & Abstracts (published online) 25p. Available at: http://www3.eeg.uminho.pt/economia/nipe/PEJ2014/index_ficheiros/Page423.htm