Economic and Mathematical Model of Business Struggle with a Vertically Integrated Company in the Market

Abstract

The paper contains an analysis of the market structure when the inferior process chain company supplies the superior company with input resources and at the same time is vertically integrated with one of the superior companies. The possible anticompetitive effects of such vertically integrated structures are analyzed as well as the influence of information flows between inferior and superior enterprises of the sector on drivers of innovation and national welfare. These issues are relevant, if important information, in particular, information technology, design and specific characteristics of the product is available to inferior and superior sector enterprises. This situation is typical for high-tech sectors in which the inferior and superior product information exchange needs ensuring compatibility of products and preventing the additional costs of adjustment and increased functionality. The problem of assessing the appropriateness of imposing a ban on various divisions of a vertically integrated company to exchange non-public information received by one of its divisions from external sources is important. In the case of such a restriction, the inferior organizational division of a vertically integrated company may use personal information of the superior competitor only within the powers of its supplier, and cannot make it public for its superior organizational division as an example. The aim of the research is to develop an economic and mathematical model of business struggle with a vertically integrated company in the market. The paper contains the hypotheses and supporting evidence.