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<p>This study constructs a vertical structure model in which an upstream firm holds forward passive ownership (FPO) of a downstream firm, and explores the effects of FPO on the strategic entry decisions by a vertically integrated firm (VIF) under different downstream competition mode. Under Cournot competition, the foreign VIF enters both markets when product substitutability is low, which is always socially desirable; otherwise, it enters only the&#xa0;final goods market, which might be undesirable under high FPO levels. Under Bertrand competition, when product substitutability is low, the foreign VIF enters both markets, which might be undesirable if FPO level is sufficiently low, but when product substitutability is intermediate (high), it only enters the&#xa0;final (intermediate) goods market, which is (never) socially desirable. While Bertrand competition is mostly efficient, Cournot competition can be efficient when product substitutability is high under low FPO level. Finally, we examine different scenarios, such as a domestic VIF, foreign FPO, and multiple upstream domestic firms, demonstrating that most of our main results hold under moderate conditions.</p>

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Forward passive ownership and entry decisions by an integrated foreign firm: Cournot and Bertrand comparisons

  • 期刊论文

  • 发表日期：

    2026年5月19日

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  • Chuyuan Zhang,
  • Sang-Ho Lee

摘要

This study constructs a vertical structure model in which an upstream firm holds forward passive ownership (FPO) of a downstream firm, and explores the effects of FPO on the strategic entry decisions by a vertically integrated firm (VIF) under different downstream competition mode. Under Cournot competition, the foreign VIF enters both markets when product substitutability is low, which is always socially desirable; otherwise, it enters only the final goods market, which might be undesirable under high FPO levels. Under Bertrand competition, when product substitutability is low, the foreign VIF enters both markets, which might be undesirable if FPO level is sufficiently low, but when product substitutability is intermediate (high), it only enters the final (intermediate) goods market, which is (never) socially desirable. While Bertrand competition is mostly efficient, Cournot competition can be efficient when product substitutability is high under low FPO level. Finally, we examine different scenarios, such as a domestic VIF, foreign FPO, and multiple upstream domestic firms, demonstrating that most of our main results hold under moderate conditions.