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10 Cards in this Set

  • Front
  • Back
Vertical Boundaries
Activities that define what the firm performs itself as opposed to purchasing from independent firms in the market.
Vertical chain
The chain of production and acquisition that ends with the sale of a finished good or service.
Means that the firm performs the activity itself, buy means the firm relies on an independent firm to perform an activity.
Arm’s length market transaction
A transaction in which the economic agents act independently and have no relationship to each other, and are both acting in their own self interest.
Earlier steps in the vertical chain.
Later stages in the chain to distribution.
Support services
R&D, accounting, activities that support the vertical chain.
Market firms
Outside specialists who perform a vertical service, for example Auspost, Fedex, HR Block accountants.
Four type of Vertical Foreclosure
Downstream monopolist acquires upstream firm. Upstream monopolist acquires downstream firm. Downstream firm acquires upstream monopolist. Upstream firm acquires downstream monopolist.
Vertical foreclosure
Anti-competitive behaviour where you buy an upstream firm that also supplies to rival firms. Sometimes there are legal limits preventing vertical foreclosure. Also, sometimes the cost of acquiring the downstream or upstream firm will include all the advantages of having market power in the price. Sometimes it does work, for example when an upstream firms acquire a lot of downstream firms and creates a network which forces other firms to accept lower prices. Another example is an upstream monopoly supplier that engages in price discrimination.