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Title: |
Integration versus non-integration: specific investments and ex-post resource distribution |
| Author: |
Suzuki, Yutaka |
| Author
Affiliation: |
Hosei University, Tokyo, Japan |
| Source: |
International Economic Journal, March 2005, v. 19, no. 1, pp. 11-35 |
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Publication Date: |
March 2005 |
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Abstract: |
I adopt a non-cooperative game theoretic approach to an incomplete contracting transaction model, à la Grossman & Hart (1986), Hart & Moore (1990) and Bolton & Whinston (1993), consisting of one upstream firm and two downstream firms. When the downstream firms need to make relation-specific investments, they can increase their ex-post bargaining position by vertically integrating ex-ante with the upstream firm with an essential asset. By introducing an explicit mechanism, bidding, which the firms can use to transfer the control right of the upstream asset, I compare the regimes of vertical integration (ex-ante) with ex-post renegotiation and non-integration, analyse equilibrium investment incentives, and show that vertical integration will evolve under certain conditions. |
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