Vertical integration and product differentiation
We study a new channel of downstream rent extraction through vertical integration: competition for integration. Innovative downstream firms create value and profit opportunities through product differentiation, which however affects an upstream monopolist’s incentive to vertically integrate. By play...
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| Format: | Article |
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Elsevier
2017
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| Online Access: | https://eprints.nottingham.ac.uk/46030/ |
| _version_ | 1848797242850279424 |
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| author | Zanchettin, Piercarlo Mukherjee, Arijit |
| author_facet | Zanchettin, Piercarlo Mukherjee, Arijit |
| author_sort | Zanchettin, Piercarlo |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | We study a new channel of downstream rent extraction through vertical integration: competition for integration. Innovative downstream firms create value and profit opportunities through product differentiation, which however affects an upstream monopolist’s incentive to vertically integrate. By playing the downstream firms against each other for integration, the upstream firm can extract even more than the additional profits generated by the downstream firms’ differentiation activities. To preempt rent extraction, the downstream firms may then reduce differentiation, which reduces social welfare. We show that this social cost of vertical integration is more likely to arise in innovative and competitive industries, and that the competition for integration channel of downstream rent extraction is robust to upstream competition. |
| first_indexed | 2025-11-14T20:00:46Z |
| format | Article |
| id | nottingham-46030 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T20:00:46Z |
| publishDate | 2017 |
| publisher | Elsevier |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-460302020-05-04T19:05:03Z https://eprints.nottingham.ac.uk/46030/ Vertical integration and product differentiation Zanchettin, Piercarlo Mukherjee, Arijit We study a new channel of downstream rent extraction through vertical integration: competition for integration. Innovative downstream firms create value and profit opportunities through product differentiation, which however affects an upstream monopolist’s incentive to vertically integrate. By playing the downstream firms against each other for integration, the upstream firm can extract even more than the additional profits generated by the downstream firms’ differentiation activities. To preempt rent extraction, the downstream firms may then reduce differentiation, which reduces social welfare. We show that this social cost of vertical integration is more likely to arise in innovative and competitive industries, and that the competition for integration channel of downstream rent extraction is robust to upstream competition. Elsevier 2017-09-07 Article PeerReviewed Zanchettin, Piercarlo and Mukherjee, Arijit (2017) Vertical integration and product differentiation. International Journal of Industrial Organization . ISSN 1873-7986 Vertical integration; Product differentiation; Rent extraction; Product innovation; Market segmentation http://www.sciencedirect.com/science/article/pii/S0167718717304137 doi:10.1016/j.ijindorg.2017.07.004 doi:10.1016/j.ijindorg.2017.07.004 |
| spellingShingle | Vertical integration; Product differentiation; Rent extraction; Product innovation; Market segmentation Zanchettin, Piercarlo Mukherjee, Arijit Vertical integration and product differentiation |
| title | Vertical integration and product differentiation |
| title_full | Vertical integration and product differentiation |
| title_fullStr | Vertical integration and product differentiation |
| title_full_unstemmed | Vertical integration and product differentiation |
| title_short | Vertical integration and product differentiation |
| title_sort | vertical integration and product differentiation |
| topic | Vertical integration; Product differentiation; Rent extraction; Product innovation; Market segmentation |
| url | https://eprints.nottingham.ac.uk/46030/ https://eprints.nottingham.ac.uk/46030/ https://eprints.nottingham.ac.uk/46030/ |