Profit‐raising Entry in Vertically Related Markets |
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| Authors: | Leonard F S Wang Jen‐yao Lee |
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| Affiliation: | 1. Department of Applied Economics, National University of Kaohsiung, Kaohsiung City, Taiwan;2. Department of International Business, National Kaohsiung University of Applied Science, Kaohsiung City, Taiwan |
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| Abstract: | We extend the standard vertical oligopoly model to allow for free entry in the upstream sector, and research and development with knowledge spillover in the downstream sector. The fact that an increase in the number of firms lowers industry profit is the common wisdom that may not hold in vertical structure of production. We provide a complementary reasoning and find that aggregate downstream profit can increase with downstream entry when the knowledge spillover effect and the entry cost are moderate. Copyright © 2014 John Wiley & Sons, Ltd. |
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