Industrial Oligopoly And Vertical Integration

In this text some fundamental issues concerning the strategic impact of vertical structures of firms are discussed in a successive oligopoly model. Vertical integration strategy has been identified as one of the key strategies which determine the success or failure of enterprises. Many studies on vertical integration are based on business experiences and interviews with managers. However, the extensive application of game theory in business economics allows this study on vertical integration to be based on sound theoretic ground. Moreover, the significance of public enterprises in some Western European economies and the trends of economic transition in Eastern Europe justify the efforts to analyse vertical integration issues in the mixed market, which is created by the participation of a public firm into an industry otherwise characterised as a successive oligopoly.

The analysis combines models of industrial organization (IO) with micro-economic models of wage bargaining between trade unions and employers. Partial equilibrium models are standard in IO. Typically the labor market is ignored. The advantage of this method is that it is possible to analyze more complex situations, for example strategic behavior. But by including the wage bargaining process new insights into problems of industrial economics can be obtained. In this book for the first time the analysis of trade union wage bargaining is combined with models of vertically connected oligopolies. The following questions are analyzed: - How does the institutional setting of the wage bargaining process influence the outcome in the product market? Does the product price depend on the level where the bargaining takes place (at the firm level, at the sector level or at the industry level)? - Does wage bargaining influence the industrial structure? Does the firms' incentive for vertical integration change with the institutional setting of the wage bargaining? - Does the institutional setting of the wage bargaining influence the firms' incentive to use franchising contracts? As a result the specification of the institutional setting of the wage bargaining matters. Therefore the bargaining power of the unions should be an additional factor in the field of IO.

This is a reprint of a previously published work. The original title was Strategies for Vertical Integration. It deals with self-sufficiency and outsourcing in various kinds of businesses.

This book collects essays written over two decades, pieces prepared especially for this volume, previously unpublished material, and reprinted articles drawn from numerous sources, many of which include additional commentary by the author. The essays are unified by George J. Stigler's careful analysis.

Seminar paper from the year 2004 in the subject Business economics - Industrial Management, grade: Sehr Gut, University of Vienna (Fakultät für Wirtschaftswissenschaften), course: Industrial Management, language: English, abstract: In explaining the reasons for the large number of mergers among multinational companies as well as small specialized businesses in recent years, the realization of potential synergies among the merging firms has often been pointed out. Synergy is a ‘Holy Grail’ of business strategy; many seek it but few actually succeed and most attempts at developing synergies meet at a non desirable fate. A global survey of A.T. Kearney (1998) concluded that after three years of a transaction the profitability of the integrated firm decreases by 10 % on average and 50 % of alliances in the USA fail within four years. Nevertheless, it is particularly claimed that a vertical integration will enable the supplier to adapt his technology in a much higher degree to the needs of his customer than when he is separately owned . A world-wide study of Arthur Andersen elaborated on the factors which firms look upon when striving for merging with another company.