The Strategy Motivation And Social Welfare Of Vertical Integration

With the rapid development of global economy and the gradual improvement of capital market, integration has become an effective way of rapid growth for many enterprises. Vertical integration can save transaction costs, weaken the negative impacts of asymmetric information, thus becoming the new way for many enterprises of expanding. At present, mergers and acquisitions in our country are mostly spontaneous,then under what circumstances vertical integration is profitable for enterprises and how will the social effects of vertical integration can be a topic worthy of further study.The second chapter of this article generalizes the motivation of vertical integration from five aspects including transaction cost, externality, transaction uncertainty, asset specificity and monopoly power.The third chapter builds a model assuming that there are a lot of oligopolists in the upstream and downstream, and analyzes the oligopolists’ vertical integration choices basing the profit maximization at production stage.And then take three types of market structure for example, analyzing the game equilibrium of vertical integration.By the analysis we can get that the vertical integrationequilibrium is not only decided by the assumption of market structure,but also affected by the product substitutability.So the next we analyzed how the product substitutability affects the integration game equilibrium.Also,we analyzed when the firms in the downstream provide differentiated products,the integrated firms can or can not purchase from the nonintegrated upstream firms for driving up the downstream rivals’ costs,thus reducing downstream competition. Through the analysis we can conclude that product substitutability can affect firms “raising rivals’ costs strategy”.If the downstream firms provide similar products, then the integrated firms may choose purchase inputs from the nonintegrated upstream firms,and if the downstream products are quitely different,then the integrated firms may not choose this strategy.The last part of the article analyzes the United States and the European Union antitrust regulation of vertical integration, to guide the formulation and implementation of anti-monopoly law in China.