Can Vertical Separation Reduce Non-Price Discrimination and Increase Welfare?

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We investigate if vertical separation reduces non-price discrimination and increases welfare. Consider an industry consistingof a vertically integrated firm and a retail entrant. The entrant requires access to the vertically integrated firm's wholesaleservices. The entrant and the vertically integrated firm's retailer sell horizontally and vertically differentiated products. Thewholesaler can degrade the quality of input it supplies to either of the retailers. We show that separation of the verticallyintegrated firm can, but need not, reduce discrimination against the entrant. Furthermore, with separation, the wholesaler maydiscriminate against the incumbent's retailer. Vertical separation impacts social welfare through two effects. First, through thedouble-marginalization effect, which is negative. Second, through the discrimination effect, which can be positive ofnegative. Hence, the net welfare impact of vertical separation is negative or potentially ambiguous.
Original languageEnglish
Title of host publicationProceedings of the ACORN-REDECOM Conference 2010
Subtitle of host publicationO futuro da regulação das TICs
EditorsMarcio Iorio Aranha
PublisherACORN-REDECOM - Americas Information and Communication Research Network
Number of pages36
ISBN (Print)9772177385006
Publication statusPublished - 2010
Event4th ACORN-REDECOM Conference: 4ª Conferencia de ACORN-REDECOM | 4ª Conferência da ACORN-REDECOM - Brasília, Brazil
Duration: 14 May 201015 May 2010

Publication series

NamePapers from the 4 th ACORN-REDECOM Conference
ISSN (Print)2177-3858
ISSN (Electronic)2177-1634


Conference4th ACORN-REDECOM Conference


  • Vertical Separation
  • Non-Price Discrimination
  • Welfare
  • Next Generation Networks


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