Upstream Competition between Vertically Integrated Firms Marc Bourreau, Johan Hombert, Jérôme Pouyet, Nicolas Schutz To cite this version: Marc Bourreau, Johan Hombert, Jérôme Pouyet, Nicolas Schutz. Upstream Competition between Vertically Integrated Firms. 2010. hal-00440126v2 HAL Id: hal-00440126 https://hal.archives-ouvertes.fr/hal-00440126v2 Preprint submitted on 7 Jul 2010 HAL is a multi-disciplinary open access L’archive ouverte pluridisciplinaire HAL, est archive for the deposit and dissemination of sci- destinée au dépôt et à la diffusion de documents entific research documents, whether they are pub- scientifiques de niveau recherche, publiés ou non, lished or not. The documents may come from émanant des établissements d’enseignement et de teaching and research institutions in France or recherche français ou étrangers, des laboratoires abroad, or from public or private research centers. publics ou privés. ECOLE POLYTECHNIQUE CENTRE NATIONAL DE LA RECHERCHE SCIENTIFIQUE UPSTREAM COMPETITION BETWEEN VERTICALLY INTEGRATED FIRMS Marc BOURREAU Johan HOMBERT Jérôme POUYET Nicolas SCHUTZ July, 2010 Cahier n° 2010-18 DEPARTEMENT D'ECONOMIE Route de Saclay 91128 PALAISEAU CEDEX (33) 1 69333033 http://www.economie.polytechnique.edu/ mailto:
[email protected] Upstream Competition between Vertically Integrated Firms1 Marc Bourreau (Telecom ParisTech and CREST) Johan Hombert (HEC Paris) Jerome Pouyet (Paris School of Economics and Ecole Polytechnique) Nicolas Schutz (Ecole Polytechnique and Paris School of Economics) Abstract We propose a model of two-tier competition between vertically integrated firms and unintegrated downstream firms. We show that, even when integrated firms compete in prices to offer a homogeneous input, the Bertrand result may not obtain, and the input may be priced above marginal cost in equilibrium, which is detrimental to consumers' surplus and social welfare.