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May 3, 2010 · What we want to do in this chapter is to remedy this ‘single-quality’ feature by turning to the analysis of what is termed ‘vertical’ product differentiation. Products are said to be ‘vertically’ differentiated if, when offered at the same price, all consumers choose to purchase the same one : that of highest quality.
- John Beath, Yannis Katsoulacos
- 1991
Mar 21, 2021 · This revision video looks at different examples of barriers to entry in imperfectly competitive markets. They include economies of scale, vertical integration, patents, limit pricing and building brand loyalty.
- Economies of Scale. Economies of scale occur when increased output leads to lower average costs. Therefore new firms, with relatively low output, will find it difficult to compete because theirs average costs will be higher than the incumbent firms benefiting from economies of scale.
- Natural / Geographical Barriers, e.g. Zimbabwe has 85% of the world supply of Chromium. If you don’t have oil in your country, you can’t enter the oil market.
- Brand loyalty through advertising. Developing consumer loyalty through establishing a strong brand image can deter entry. With a very strong brand image, a new firm would have to spend a lot of money on advertising, which is a sunk cost and a deterrent to entry.
- Limit Pricing. This occurs when a firm sets price sufficiently low to deter entry. A monopoly may engage in limit pricing – even though it means fewer profits, it prefers to keep prices lower to prevent competition.
This paper provides a brief summary of recent developments in economic theory and empirical analysis of vertical integration (mergers) and vertical arrangements (restraints). The picture that emerges is one of a rather fragmented theory that only very recently has begun to move in directions that appear promising.
- Azzeddine M. Azzam, Emilio Pagoulatos, Emilio Pagoulatos
- 1999
Vertical restraints refer to restrictions or conditions imposed by a firm on its suppliers or distributors in a vertical supply chain. These restraints aim to control the terms and conditions under which products or services are sold, distributed, or used.
The term vertical restraints refers to the restrictions of competition contained in vertical agreements. These agreements take place between firms operating at different levels of the production or distribution chain.
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a “vertical restraint” means a restriction of competition in a vertical agreement falling within the scope of Article 101(1) TFEU - see Commission Regulation 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories
