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Incomplete contracts, vertical integration and product market competition

Incomplete contracts, vertical integration and product market competition
Incomplete contracts, vertical integration and product market competition
This paper adopts an incomplete contracts approach to vertical integration, relating the choice of ownership structure explicitly to the investment incentives of self-interested agents. In particular, we focus on the dependence of equilibrium industry ownership structure on two key influences: the relative effectiveness of upstream (versus downstream) investment and the toughness of final product market competition. Concentrating asset ownership in downstream hands encourages specialisation in final good production, at the expense of valuable investment in input production. The attractions of foreclosure-inducing integration are found to decrease with the relative effectiveness of upstream investment, but vary non-monotonically with increases in the toughness of competition.
9716
University of Southampton
Halonen, M.
8792311e-27f6-4129-82f9-4f8eeb7dfda1
Williams, I.
6ac8e135-1ad4-4481-bb4e-d68e4a0c65fd
Halonen, M.
8792311e-27f6-4129-82f9-4f8eeb7dfda1
Williams, I.
6ac8e135-1ad4-4481-bb4e-d68e4a0c65fd

Halonen, M. and Williams, I. (1997) Incomplete contracts, vertical integration and product market competition (Discussion Papers in Economics and Econometrics, 9716) Southampton, UK. University of Southampton

Record type: Monograph (Discussion Paper)

Abstract

This paper adopts an incomplete contracts approach to vertical integration, relating the choice of ownership structure explicitly to the investment incentives of self-interested agents. In particular, we focus on the dependence of equilibrium industry ownership structure on two key influences: the relative effectiveness of upstream (versus downstream) investment and the toughness of final product market competition. Concentrating asset ownership in downstream hands encourages specialisation in final good production, at the expense of valuable investment in input production. The attractions of foreclosure-inducing integration are found to decrease with the relative effectiveness of upstream investment, but vary non-monotonically with increases in the toughness of competition.

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More information

Published date: January 1997

Identifiers

Local EPrints ID: 33190
URI: http://eprints.soton.ac.uk/id/eprint/33190
PURE UUID: 767de9e8-6fee-45cf-8678-749e6b021198

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Date deposited: 25 Jan 2008
Last modified: 22 Jul 2022 20:40

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Contributors

Author: M. Halonen
Author: I. Williams

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