Can vertical separation reduce non price discrimination and increase welfare - Duarte Brito, Pedro Pereira, João Vareda (2010)
by ACORN-REDECOM on Jul 21, 2011
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We investigate if vertical separation reduces non-price discrimination and increases welfare. Consider an industry consisting ...
We investigate if vertical separation reduces non-price discrimination and increases welfare. Consider an industry consisting
of a vertically integrated firm and a retail entrant. The entrant requires access to the vertically integrated firm's wholesale
services. The entrant and the vertically integrated firm's retailer sell horizontally and vertically differentiated products. The
wholesaler can degrade the quality of input it supplies to either of the retailers. We show that separation of the vertically
integrated firm can, but need not, reduce discrimination against the entrant. Furthermore, with separation, the wholesaler may
discriminate against the incumbent's retailer. Vertical separation impacts social welfare through two effects. First, through the
double-marginalization effect, which is negative. Second, through the discrimination effect, which can be positive of
negative. Hence, the net welfare impact of vertical separation is negative or potentially ambiguous.
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