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Vertical Integration and Competition Between Networks

The Review of Network Economics

Vol. 4, Issue 1 - March 2005, pp 4 - 18

  Catherine C. de Fontenay
Melbourne Business School and Department of Economics, University of Melbourne

Joshua S. Gans
Melbourne Business School, University of Melbourne
E-mail: [email protected]

  This paper provides a simple model of bargaining and integration within a network and considers how intra-network structure is impacted on by competition between networks. Apart from its analytical tractability, our model demonstrates how integration can be used strategically to redistribute network profits from downstream firms to upstream providers of network services. It also demonstrates that increased inter-network competition can mitigate incentives for inefficient integration.

Keywords: vertical integration, bilateral negotiation, bargaining power

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