*I would like to thank two anonymous referees and the Editor for their helpful comments and suggestions. I would also like to thank Junichiro Ishida, Toshihiro Matsumura and the seminar participants at the Institute of Social Science at the University of Tokyo, Kyoto University, and Shinshu University. The author gratefully acknowledges financial support from a Grant-in-Aid for Encouragement of Young Scientists from the Japanese Ministry of Education, Science and Culture. Needless to say, I am responsible for any remaining errors.
VERTICAL MERGERS AND PRODUCT DIFFERENTIATION*
Article first published online: 24 NOV 2009
© 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics
The Journal of Industrial Economics
Volume 57, Issue 4, pages 812–834, December 2009
How to Cite
MATSUSHIMA, N. (2009), VERTICAL MERGERS AND PRODUCT DIFFERENTIATION. The Journal of Industrial Economics, 57: 812–834. doi: 10.1111/j.1467-6451.2009.00402.x
- Issue published online: 24 NOV 2009
- Article first published online: 24 NOV 2009
This paper presents an equilibrium theory of vertical mergers that incorporates strategic behaviors in the Hotelling-type location model. This enables one to consider the relationship between downstream firms' strategies for product differentiation and vertical integration. I show that vertical integration enhances the degree of product differentiation of the integrated firm. Under some conditions, partial integration arises in equilibrium, which may increase the profit of the nonintegrated downstream firm. The paper also discusses the welfare implications of vertical integration.