Vertical integration in a monopolistically competitive industry

This paper considers forward vertical integration by a monopolist producer of an intermediate good when the downstream industry is monopolistically competitive. Alternative methods of vertical control are considered in addition to the usual input mark-up; these include franchise fees, royalties, and resale price maintenance. It is found that these methods in combination achieve perfect or near-perfect replication of the outcome under full vertical integration. The case where downstream products are differentiated by location in a circular space is studied in detail, and alternative outcomes are ranked according to their social desirability.