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The proponent firm chooses between merging with a substitute component producer, with a complementary component producer or remaining alone.
Then, several interesting questions raise: Is it more profitable for a component producer to merge with a substitute or with a complement component producer?
One more component producer is not only increasing competition in the market but also allowing existing firms to sell more composite goods that were not previously available.
They moved to electronic component producer Technitrol and construction company Perini, a company they have been hopping in and out of all year.
This paper studies merging behavior in a composite good industry allowing firms to choose the type of partner, either a complementary or a substitute component producer.
Component producers face the option to either merge with a similar component producer (horizontal merger) or a complementary one (vertical merger) of a composite good.
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Companies on Taiwan have also been able to shift gears smoothly because the concentration of component producers on the island has made it easier to gather the technology and engineers to design and assemble new products.
Consider an asymmetric industry where, without loss of generality, there are three type (A) component producers and only two type (B) component producers.
The system company develops an optimal contractual design separating component producers' qualities and providing optimal incentives to them.
Finally, the condition for a vertical merger to be cleared becomes more restrictive as the number of component producers increases, irrespective of the standard used.
Table 2 includes the precise conditions for a (V) merger to be cleared under both standards and how they vary according to the number of component producers.
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CEO of Professional Science Editing for Scientists @ prosciediting.com