Quality choice and vertical integration
We show that, despite coordination in the quality level of the components that they provide, independent vertically-related (disintegrated) monopolists will provide products of lower quality level than a sole integrated monopolist. Further, the integrated monopolist achieves higher market coverage,...
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Published in | International journal of industrial organization Vol. 17; no. 6; pp. 903 - 914 |
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Main Author | |
Format | Journal Article |
Language | English |
Published |
Amsterdam
Elsevier B.V
01.08.1999
Elsevier North-Holland Elsevier Sequoia S.A |
Series | International Journal of Industrial Organization |
Subjects | |
Online Access | Get full text |
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Summary: | We show that, despite coordination in the quality level of the components that they provide, independent vertically-related (disintegrated) monopolists will provide products of lower quality level than a sole integrated monopolist. Further, the integrated monopolist achieves higher market coverage, higher consumer surplus, and higher profits. We establish these results for any distribution of preferences in the standard model of quality differentiation. Despite the lower quality, we also show that, for a wide class of cost functions, price will be higher in a market of independent vertically-related monopolists. All results are the effects of the interaction of double-marginalization, occurring in the market of independent monopolists, with the choice of quality. |
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Bibliography: | ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23 |
ISSN: | 0167-7187 1873-7986 |
DOI: | 10.1016/S0167-7187(97)00063-5 |