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Title:
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| Number: | 07-04 |
| Author: | |
| Issue Date: | February 2007 |
| Abstract: | Suppose consumers buy complementary goods sequentially from
several monopolists. If prices cannot be contracted on, there may be no
sale in a one-shot game due to the holdup problem. Dynamic interaction
of agents attenuates the problem. In equilibrium, the first and the
last monopolist capture the entire monopoly profit while the other
monopolists break even. Vertical integrations that exclude the last
monopolist neither lower the price nor increase social welfare. On the
other hand, partial integrations that include the last monopoly can
reduce the combined profit and hence may never occur despite the
welfare-improving potential. |
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