Technical Efficiency, Market Power And Performance Of Vertical Integration

Enterprise vertical integration can reduce the opportunism behavior in contract implementation, increase specialization asset investment, so as to improve production efficiency through the vertical control.lt will increase its monopoly power and monopoly profit by controlling the upstream and downstream firms.This paper bases on the Chinese steel industry vertical integration problems, researches the two kinds of effects by vertical integration.Firstly, we analyse the formation mechanism for vertical integration of China’s steel industry respectively on supply scarce and excess capacity conditions.We find the R&D investment, product yield, industry profits,consumer surplus and social welfare increase with vertical integrating.Further, the industrial concentration will change with the vertical integration, vertical integration brings market power to the enterprise, increases the degree of industrial concentration.Based on the theoretical model, this paper uses Chinese steel company listed the 2000-2006 panel data, inspects the impact of vertical integration on enterprise performance. Finally, this paper based on the theoretical and empirical researches, giving the policy suggestions. We think the vertical integration will improve the erterprise performance.Therefore, the government should encourage enterprise vertical integration. To promote the overall vertical integration,The no-partiality policy support is better than key support policies.