Examples Of Vertical Separation Of A Firm
When looking at this question, let's first consider what is meant by vertical separation of a firm. Vertical separation of a firm is when that firm sells the good or service they produce through an independent retailer rather than sell its product itself directly to customers which is vertical integration. So when it come to incumbent firms, firms in which are already well established and selling within a market would it be better off if that firm is operated as one firm that is integrated or if in fact it would be better off if the company was separated. For example if the company that provide telecom infrastructure supplies the framework as well as the actual service itself or should it be managed by two different firms? When first answering the question does vertical separation of these incumbent introduce more competition into the industry, we must first understand the way in which the firm would work as one firm or two independent firms. Taking into account first, if the goods and services were provided by two different independent firms. Both firms have market power and would set their own prices
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Customers would face only one markup and the market would have one less deadweight loss. Therefore the price in which consumers would face would be lower, less cost to society as the burden of only one deadweight loss could be passed on to the consumer instead of the initial two. The lowered price of the goods or services for buyers will increase its demand and allow the firm to gain more profits. The firms profits could also be increased if the firm in the primary or secondary production part of the supply chain are able to cause an appreciation of the good before it is sold at tertiary level it will also increase demand and in turn the companies profits. So in this case both firms and consumers are benefiting from vertical
Customers would face only one markup and the market would have one less deadweight loss. Therefore the price in which consumers would face would be lower, less cost to society as the burden of only one deadweight loss could be passed on to the consumer instead of the initial two. The lowered price of the goods or services for buyers will increase its demand and allow the firm to gain more profits. The firms profits could also be increased if the firm in the primary or secondary production part of the supply chain are able to cause an appreciation of the good before it is sold at tertiary level it will also increase demand and in turn the companies profits. So in this case both firms and consumers are benefiting from vertical