Lecture 4: Vertical Merger and Vertical Restraints
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Outline•What are vertical restraints?•Why would company want to use vertical restraints?–Double marginalization–Free riding•Why vertical restraints and vertical merger may have procompetitive effect by solving the externality problem in intra-brand competition?
Vertical Integration and Vertical Restraints•Most industries are characterized by upstream and downstream firms.–Upstream firm produces product. –Downstream firm is the retailer/distributor who sells the product.•For example–Car manufacturer is the upstream firm–Car dealer is the downstream firm