Abstract
This paper analyzes a strategic entry game by vertically integrated firms
in a successive Cournot model. When a vertically integrated firm enters backward
into the input market, it chooses one between two; direct entry or spin-off. Such an
entry makes the input market be more competitive than before. It also benefits all
separated downstream firms, whereas it deteriorates all integrated downstream firms.
The number of downstream firms plays an important role in equilibrium. If the number
of downstream firms is less than a threshold level, integrated firms choose direct entry,
whereas, if the number of downstream firms exceeds the threshold level, integrated
firms spin off their input divisions.
