Integration vs. Separation when upstream investments matter : Whether Intermediary is always an Evil?
2013
Rozanova, Olga
The work studies how the predictions of the standard/classical vertical relationship model change if we add to it rather reasonable and not less classical assumption that producers set not only prices, but also choose the level of demand-enhancing investments. The analysis shows that this modification of the benchmark model may add some predictions that are interesting from the policy perspective. The central result of the paper is that consumers may be better off in the presence of passive intermediaries compared to the situation without intermediaries. For linear in price demand function the presence of upstream market competition is an important condition for this result to hold.
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