TITLE:
Determinants of Vertical Integration: Investment Efficiency, Product Differentiation and Firm Size
AUTHORS:
Toshiyuki Yamawake, Shigetsune Yamoto, Hoe Chin Goi, Dong-Joon Lee
KEYWORDS:
Investment Efficiency, Product Differentiation, Market Size, Vertical Integration
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.5,
April
17,
2018
ABSTRACT: This study examines the determinants of Merger and Acquisition
(M & A) when manufacturing firms integrate with retailing firms. We examine
a manufacturing duopoly in which each upstream firm sells the output to its
exclusive retailing firm. In sequence of the timing of game, the strategic
variables are set as Research and Development (R & D) investment, wholesale
price by manufacturing firms and sales volume by retailing firms. The study concludes
that degree of investment efficiency, product differentiation, and market size play
important roles in vertical integration. Our conclusion shows that if product
differentiation becomes greater, the vertical integration increases. Secondly,
if the market size becomes larger, the vertical integration increases. Thirdly,
the vertical integration increases when investment efficiency becomes higher.
Our theoretical findings are also supported by the empirical results with the
listed Japanese company data from 1996 to 2016.