Strategic Buying or Selling?: The Behavior of Vertically-Integrated Firms in the Intermediate Goods Market

Wang, Kuang-Cheng; Koo, Hui-Wen; Chen, Tain-Jy

doi:2005.20.2.366

The Journal of Economic Integration 2005 June;20(2) :366-382.
DOI: https://doi.org/10.11130/jei.2005.20.2.366

Strategic Buying or Selling?: The Behavior of Vertically-Integrated Firms in the Intermediate Goods Market

Kuang-Cheng Wang, Hui-Wen Koo, Tain-Jy Chen,

Chang Gung University
National Taiwan University

ABSTRACT

This paper considers a successive oligopoly model in which a vertically-intergrated firm(VI firm) can buy or sell intermediate goods. We find that when there are only a small number of VI firms in the market, they tend to b uyor 3even to store up intermediate goods. In our setting, a vertical merger wil l not result in market foreclosure and it always in creases social welfare.

JEL Classifications: L11, L13

Keywords: Market structure | Vertically-Integrated firms | Strategic buying

REFERENCE

1.	Greenhut, M. L. Ohta, H. (1979) "Vertical Integration of Successive Oligopolists," American Economic Review, 69(1), 137-141.

2.	Lopatka, J. E. Godek, P. E. (1992) "Another Look at ALCOA: Raising Rivals' Cost Does Not Improve the View," Journal of Law and Economics, 35, 311-329.