This book investigates under which circumstances vertical unbundling can lead to a more efficient market result. The assessment is based on an interdisciplinary approach combining law and economics. Drawing on the assessment, circumstances are subsequently presented under which unbundling might become necessary. Additionally, less severe means of regulatory intervention are suggested in order to protect competition. Given its scope, the book is chiefly intended for scholars and practitioners in the field of economic policy and regulation law; in addition, it will give interested members of the public a unique opportunity to learn about the underlying rationales of regulation law and regulation economics.

We analyze the competitive effects of backward vertical integration when firms exert market power upstream and compete à la Cournot downstream. Contrasting with previous literature, a small degree of vertical integration is always procompetitive because efficiency gains dominate foreclosure effects, and vertical integration even to full foreclosure can be procompetitive. Surprisingly, vertical integration is more likely to be procompetitive if the industry is otherwise more concentrated. Extensions analyze incentives to integrate and differentiated Bertrand competition downstream. Our analysis suggests that antitrust authorities should be wary of vertical integration when the integrating firm faces many competitors and should be permissive otherwise.

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.

This paper analyzes the impact of competition among downstream firms on an upstream firm's payoff and on its incentive to vertically integrate when firms in both segments negotiate optimal contracts. We argue that as competition becomes more intense, the upstream firm obtains a larger share of a smaller downstream industry surplus. The upstream firm may encourage competition (even excessively) in response to high downstream bargaining power. The option of vertical integration may be a barrier to entry and may trigger strategic horizontal spin-offs or mergers. We extend the analysis to upstream competition.

Few people would disagree with the proposition that horizontal mergers have the potential to restrict output and raise consumer prices. In contrast, there is much less agreement about the anti-competitive effects of vertical mergers. The purpose of this paper is to develop a theoretical model showing how vertical integration changes the nature of competition in upstream and downstream markets and identifying conditions under which market foreclosure will be a consequence or even a purpose of such integration. In contrast to much of the literature, we do not restrict upstream and downstream firms to particular contractual arrangements, but instead allow firms to choose from a full set of contractual arrangements both when integrated and when not. We also allow non-integrated firms to respond optimally to the integration decisions of other firms, either by remaining nonintegrated, exiting the industry or integrating too (i.e. bandwagoning). In a final section we use our analysis to shed some light on a number of prominent vertical merger cases, involving computer reservation systems for airlines, the cement industry and the St. Louis Terminal Railroad.