Indirect versus Direct Constraints in Markets with Vertical Integration |
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Authors: | Roman Inderst Tommaso Valletti |
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Institution: | University of Frankfurt, DE-60323 Frankfurt, Germany ; Imperial College London, London SW7 2AZ, England
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Abstract: | For an assessment of market power on the wholesale (or merchant) market in the presence of vertically integrated firms, we analyze the interaction of direct constraints, arising from competition on the wholesale market, and of indirect constraints, arising from substitution on the retail market. A vertically integrated firm that still participates in the merchant market exerts both direct and indirect constraints. We analyze the factors that determine the importance of indirect constraints. We find that, in contrast to a common presumption, indirect constraints are sometimes more powerful than direct constraints. We furthermore analyze the incentives of integrated firms to still participate in the merchant market, provided that this is technologically feasible. |
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Keywords: | Market power antitrust merchant market |
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