Vertical integration and exclusive vertical restraints in health-care markets

We examine vertical integration and exclusive vertical restraints in health-care markets where insurers and hospitals bilaterally bargain over contracts. We employ a bargaining model in a concentrated health-care market of two hospitals and two health insurers competing on premiums. Without vertical integration, some bilateral contracts will not be concluded only if hospitals are sufficiently differentiated, whereas with vertical integration we find that a breakdown of a contract will always occur. There may be two reasons for not concluding a contract. First, hospitals maychoose to soften competition by contracting only one insurer in the market. Second, insurers and hospitals may choose to increase product differentiation by contracting asymmetric hospital networks. Both types raise total industry profits and lower consumer welfare.

Asymmetric Vertical Integration

We examine vertical backward integration in a reducedform model of successive oligopolies. Our key findings are: (i) There may be asymmetric equilibria where some firms integrate and others remain separated, even if firms are symmetric initially; (ii) Efficient firms are more likely to integrate vertically. As a result, integrated firms also tend to have a large market share. The driving force behind these findings are demand/mark-up complementarities in the product market. We also identify countervailing forces resulting from strong vertical foreclosure, upstream sales and endogenous acquisition costs.successive oligopolies, vertical integration, effciency, foreclosure

Vertical integration, competition, and financial exchanges: is there grain in the silo?

We investigate the incentives for vertical or horizontal integration in the financial security service industry, consisting of trading, clearing and settlement. We thereby focus on firms’ decisions but also look on the implications of these decisions on competition and welfare. Our analysis shows that the incentives for vertical integration crucially depend on industry as well as market characteristics. A more pronounced demand for liquidity clearly favors vertical integration whereas deeper financial integration increases the incentives to undertake vertical integration only if the efficiency gains associated with vertical integration are sufficiently large. Furthermore, we show that market forces can suffer from a coordination problem that end in vertically integrated structures that are not in the best interest of the firms. We believe this problem can be addressed by policy measures such as the TARGET2-Securities program. Furthermore, we use our framework to discuss major industry trends and policy initiatives. Keywords: Vertical Integration , Horizontal Integration , Competition , Trading , Settlement JEL Classification: G15, L13, L2

Competitive E?ects of Vertical Integration with Downstream Oligopsony and Oligopoly

We analyze the competitive e?ects of backward vertical integration by a partially vertically integrated ?rm that competes with non-integrated ?rms both upstream and downstream. We show that vertical integration is procompetitive under fairly general conditions. It can be anticompetitive only if the ex ante degree of integration is relatively large. Interestingly, vertical integration is more likely to be anticompetitive if the industry is less concentrated. These results are in line with recent empirical evidence. In addition, we show that even when vertical integration is procompetitive, it is not necessarily welfare enhancing

Strategic vertical integration without foreclosure

We determine the endogenous degree of vertical integration in a model of successive oligopoly that captures both efficiency gains and strategic effects. We show that vertical merger waves can be expected to stop by themselves before integration is complete. Consequently, vertical foreclosure plays no significant role in this paper that claims for a soft approach of vertical integration by antitrust authorities.merger waves, vertical integration, vertical foreclosure

Intermediation and vertical integration

This paper views financial intermediaries as vertically integrated firms. The authors explore how competitive conditions in retail and wholesale funding markets affect the incentive for (upstream) originators and (downstream) fund managers to integrate. The underlying tradeoff in our model is driven by the choice between the production of an illiquid but high yielding loan and a liquid but relatively low yielding bond. The authors find that greater homogeneity among savers has two effects, both of which tend to increase the incentive to form integrated intermediaries. Greater homogeneity both increases competition between independent fund managers and reduces the likelihood of inefficient underinvestment by integrated intermediaries. The authors also find that the incentive to integrate is greater when fund managers have more power in the market for firms' securities.Bank competition ; Bank loans ; Financial institutions

APPROACH I: VERTICAL INTEGRATION

Marketing,

Vertical Integration and Investor Protection in Developing Countries

The industrial organization of developing countries is characterized by the pervasive use of subcontracting arrangements among small, financially constrained firms. This paper asks whether vertical integration relaxes those financial constraints. It shows that vertical integration trades off the benefits of joint liability against the costs of rendering the supply chain more opaque to external investors. In contrast to the commonly held view that pervasive input and capital market imperfections are conducive to vertical integration, the model predicts that the motives for vertical integration are not necessarily higher in developing countries. In particular, vertical integration is more likely to arise at intermediate levels of investor protection and better contract enforcement with suppliers reduces vertical integration only if financial markets are sufficiently developed. Evidence supporting both predictions is discussed.Vertical Integration, Industrial Development, Financial Constraints, Joint Liability, Trade Credit, Community-based Industries

Market Structure and the Competitive Effects of Vertical Integration

We analyze the competitive effects of backward vertical integration in a model with oligopolistic firms that exert market power upstream and downstream. In contrast to previous literature, we show that a small degree of vertical integration is always procompetitive because efficiency effects dominate foreclosure effects. Moreover, vertical integration even to monopoly can be procompetitive. With regard to market structure, we find, somewhat surprisingly, that vertical integration is more likely to be procompetitive if the industry is more concentrated. Our model thus suggests that antitrust authorities should be particularly wary of vertical integration in relatively competitive industries. We demonstrate that the quantitative welfare effects can be substantial there.Vertical Integration; Market Structure; Downstream Oligopsony; Competitive Policy

Competitive E?ects of Vertical Integration with Downstream Oligopsony and Oligopoly

We analyze the competitive e?ects of backward vertical integration by a partially vertically integrated ?rm that competes with non-integrated ?rms both upstream and downstream. We show that vertical integration is procompetitive under fairly general conditions. It can be anticompetitive only if the ex ante degree of integration is relatively large. Interestingly, vertical integration is more likely to be anticompetitive if the industry is less concentrated. These results are in line with recent empirical evidence. In addition, we show that even when vertical integration is procompetitive, it is not necessarily welfare enhancing.Vertical Integration; Downstream Oligopsony; Downstream Oligopoly; Competition Policy; Capacity Choice