Vertical Integration toward an Export-Oriented Industry

The literature on vertical integration has constantly assumed a linear demand for the final good market. In this paper, we instead assume the demand to be a general one and use it to derive the welfare effect of vertical integration toward an export-oriented industry. It is shown that the effect of vertical integration on the intermediate good price depends on the curvature of the derived demand curve. Moreover, vertical integration is welfare-improving only if it increases the price of the intermediate good.