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Alliance Partner Choice in Markets with Vertical and Horizontal Externalities

By Keisuke Hattori and Ming Hsin Lin

Abstract

This study investigates the choice between complementary and parallel alliances in a market with vertical and horizontal externalities. One composite goods firm competes with two components producers, each providing a complementary component of a differentiated com- posite good. Although the joint profits from a parallel alliance between the composite goods firm and a components producer are always larger than those from a complementary alliance between components producers, through Nash bargaining, a components producer prefers the complementary (parallel) alliance when the degree of product differentiation is sufficiently large (small). Combined with the result that a complementary alliance is socially preferable, our findings provide meaningful implications for antitrust policy.

Topics: L11 - Production, Pricing, and Market Structure; Size Distribution of Firms, L13 - Oligopoly and Other Imperfect Markets, L41 - Monopolization; Horizontal Anticompetitive Practices
Year: 2010
DOI identifier: 10.2202/1935-1704.1732
OAI identifier: oai:mpra.ub.uni-muenchen.de:25732

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