Backward partial vertical integration through private placement

Ricardo Gonçalves

doi:10.1007/s10842-023-00403-4

Backward partial vertical integration through private placement

Ricardo Gonçalves^*

^*Autor correspondente para este trabalho

Resultado de pesquisa › revisão de pares

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Resumo

We analyze the market impact of a partial vertical integration whereby a subset of retail firms acquire, through a private placement operation, a non-controlling stake in the capital of an upstream firm, which supplies an essential input. In addition, we assume that this upstream firm can price discriminate between the retail firms which (now) own a stake in its capital and all of their retail rivals. We find that price discrimination is optimal and, compared to a vertical separation scenario, there is input foreclosure, a higher retail price, and lower social welfare, which suggests that, from a competition policy viewpoint, such partial vertical integrations should be analyzed with particular concern. On the other hand, incentives are such that conducting a private placement operation of the upstream firm’s capital yields gains from trade, and we are able to identify the optimal characteristics of such an operation.

Idioma original	English
Páginas (de-até)	101-122
Número de páginas	22
Revista	Journal of Industry, Competition and Trade
Volume	23
Número de emissão	3-4
DOIs	https://doi.org/10.1007/s10842-023-00403-4
Estado da publicação	Publicado - dez. 2023

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10.1007/s10842-023-00403-4Licença:

74413710Final published version, 561 KBLicença:

http://hdl.handle.net/10400.14/42367Licença:

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CEGE: Research Center in Management and Economics
Silva, M. (Professor Catedrático), Sousa, R. (Professor Catedrático), Alves, P. (Professor Auxiliar), Madsen, A. (Professor Auxiliar Convidado), Lourenço, A. (Professor Associado), Carvalho, A. S. (Professor Associado), Andrade, A. (Professor Auxiliar), Silva, P. D. (Professor Associado), Vlačić, B. (Professor Auxiliar Convidado), Martins, C. (Professor Auxiliar Convidado), Gomes, C. (Investigador Auxiliar), Gevrek, Z. E. (Professor Auxiliar Convidado), Oliveira, F. G. D. (Professor Associado), Faria, G. (Professor Associado Convidado), Marreiros, H. (Bolseiro), Pinho, J. (Professor Auxiliar Convidado), Machado, J. (Professor Associado), Araújo, J. (Investigador Auxiliar), Pinto, J. (Professor Auxiliar), Rego, A. (Professor Catedrático), Gaspar, J. M. (Investigador Auxiliar), Corbo, L. (Professor Auxiliar Convidado), Costa, L. (Professor Associado), Fernandes, L. (Professor Auxiliar), Sottomayor, M. (Professor Auxiliar), Martins, N. (Professor Catedrático), Hernández-Marrero, P. (Investigador Auxiliar), Gonçalves, R. (Professor Associado), Ribeiro, R. (PI), Coelho, S. L. (Docente Assistente), Pereira, S. M. (Investigador Auxiliar), Silva, S. (Professor Associado), Rodrigues, V. (Professor Associado), Sotiros, D. G. (Investigador Auxiliar), Valverde, C. (Professor Auxiliar), Leitão, A. (Professor Auxiliar), Julião, J. (Professor Auxiliar), Tavares, M. (Professor Auxiliar), Lages, C. R. (Investigador Auxiliar), Elmashhara, M. G. (Investigador Auxiliar) & Teymourifar, A. (Investigador Auxiliar)
1/01/20 → 31/12/24
Projeto

Citação

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title = "Backward partial vertical integration through private placement",

abstract = "We analyze the market impact of a partial vertical integration whereby a subset of retail firms acquire, through a private placement operation, a non-controlling stake in the capital of an upstream firm, which supplies an essential input. In addition, we assume that this upstream firm can price discriminate between the retail firms which (now) own a stake in its capital and all of their retail rivals. We find that price discrimination is optimal and, compared to a vertical separation scenario, there is input foreclosure, a higher retail price, and lower social welfare, which suggests that, from a competition policy viewpoint, such partial vertical integrations should be analyzed with particular concern. On the other hand, incentives are such that conducting a private placement operation of the upstream firm{\textquoteright}s capital yields gains from trade, and we are able to identify the optimal characteristics of such an operation.",

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author = "Ricardo Gon{\c c}alves",

note = "Funding Information: Financial support from FCT (Foundation for Science and Technology) and POCI 2010 is gratefully acknowledged. I would like to thank three anonymous referees, Kurt Brekke, Miguel Fonseca, Tommy Staahl Gabrielsen, Matthias Hunold, Lars S{\o}rgard, Fl{\'a}vio Menezes and participants in a seminar at the NHH - Norwegian School of Economics, as well as participants in the 8th Meeting of the Portuguese Economic Journal (2014, Braga, Portugal) and in the CEGE-NIPE research workshop (2014) for their helpful comments and suggestions. Publisher Copyright: {\textcopyright} 2023, The Author(s).",

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doi = "10.1007/s10842-023-00403-4",

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AU - Gonçalves, Ricardo

N1 - Funding Information: Financial support from FCT (Foundation for Science and Technology) and POCI 2010 is gratefully acknowledged. I would like to thank three anonymous referees, Kurt Brekke, Miguel Fonseca, Tommy Staahl Gabrielsen, Matthias Hunold, Lars Sørgard, Flávio Menezes and participants in a seminar at the NHH - Norwegian School of Economics, as well as participants in the 8th Meeting of the Portuguese Economic Journal (2014, Braga, Portugal) and in the CEGE-NIPE research workshop (2014) for their helpful comments and suggestions. Publisher Copyright: © 2023, The Author(s).

PY - 2023/12

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N2 - We analyze the market impact of a partial vertical integration whereby a subset of retail firms acquire, through a private placement operation, a non-controlling stake in the capital of an upstream firm, which supplies an essential input. In addition, we assume that this upstream firm can price discriminate between the retail firms which (now) own a stake in its capital and all of their retail rivals. We find that price discrimination is optimal and, compared to a vertical separation scenario, there is input foreclosure, a higher retail price, and lower social welfare, which suggests that, from a competition policy viewpoint, such partial vertical integrations should be analyzed with particular concern. On the other hand, incentives are such that conducting a private placement operation of the upstream firm’s capital yields gains from trade, and we are able to identify the optimal characteristics of such an operation.

AB - We analyze the market impact of a partial vertical integration whereby a subset of retail firms acquire, through a private placement operation, a non-controlling stake in the capital of an upstream firm, which supplies an essential input. In addition, we assume that this upstream firm can price discriminate between the retail firms which (now) own a stake in its capital and all of their retail rivals. We find that price discrimination is optimal and, compared to a vertical separation scenario, there is input foreclosure, a higher retail price, and lower social welfare, which suggests that, from a competition policy viewpoint, such partial vertical integrations should be analyzed with particular concern. On the other hand, incentives are such that conducting a private placement operation of the upstream firm’s capital yields gains from trade, and we are able to identify the optimal characteristics of such an operation.

KW - Input foreclosure

KW - Partial vertical integration

KW - Price discrimination

KW - Private placement

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EP - 122

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JF - Journal of Industry, Competition and Trade

IS - 3-4

ER -

Backward partial vertical integration through private placement

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CEGE: Research Center in Management and Economics

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