Using an independent private values model, we analyze the effects of and incentives for vertical integration. Each firm is characterized by an amount of internally held resources and a maximum demand for these resources as inputs, which determine the firm’s extent of vertical integration, and a distribution for the firm’s private marginal value for resources. After private information is realized, firms trade resources and payoffs are realized. Depending on type realizations, a vertically integrated firm may sell resources to others, buy resources from others, and/or consume resources held internally. A certain extent of vertical integration is necessary and sufficient for the first-best to be possible. With two firms, equilibrium vertical integration is socially optimal but with more firms, vertical integration is typically excessive because of externalities from bilateral transactions. The model provides both rationale and guidance for divestiture after a vertical merger.
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The seminar presentations are scheduled to last 60 minutes: 45 minutes of presentation and 15 minutes for both comments and questions.
We will experiment with various methods for questions: A moderator collects questions during the presentation. Speakers will be encouraged to pause every few slides to allow a gap for questions. The moderator will relay clarification questions or unmute selectively during the talk. Remaining questions will be collected and asked in the discussion period.
Just like with other initiated virtual seminars, these rules are subject to change as we gain experience with how to handle the seminar most efficiently.
The Virtual Market Design Seminar is an open online alternative to seminars cancelled due to the COVID-19. Seminars will cover all fields from market design. The seminar presentations are scheduled to last 60 minutes, after 45 minutes of presentation, 15 minutes are for both comments and question.