Trade policy and integration among firms producing complementary products

  • Leonardo Medrano Centro de Investigación y Docencia Económicas, A.C.
Keywords: insurance agencies, duopoly, comissions


This paper studies the effects on insurance premiums and consumer welfare when commissions to insurance agencies exist and are used strategically to sell insurance policies. The opportunistic behavior of agency insurers that sell the policy paying the highest commission is considered. Different market structures are considered, namely, a duopoly of insurers that compete in commissions (insurer competition), collusion among insurers with agency insurers remaining independent (horizontal collusion or insurer monopoly) and collusion between insurers and agency insurers (vertical integration or exclusive agents). We fins that insurer competition and vertical integration trigger higher premium than horizontal collusion with independent agencies. Furthermore, we argue that the optimal commission from the consumer viewpoint may be greater than the commission offered under any of the above three market structures.


Binmore, K. (1992). Fun and Games, Lexington, Mass, D. C. Heath.

Bernhofen, D. M. (1997). “Strategic Trade Policy in Vertically Related Industry”, Review of International Economics, 5, pp. 429-433.

Brander, J. and B. Spencer (1985). “Export Subsidies and International Market Share Rivalry”, Journal of International Economics, 18, pp. 83-100.

Bulow, J., J. Geanakoplo, P. Klemperer (1985). “Multimarket Oligopoly: Strategic Substitutes and Complements”, Journal of Political Economy, 93, pp. 488-511.

Carmichael, C. M. (1987). “The Control of Export Credit Subsidies and its Welfare Consequences”, Journal of International Economics, 23, pp. 1-19.

Dixit, A. and A. Kyle (1985). “The Use of Protection and Subsidies for Entry Promotion and Deterrence”, American Economic Review, 75, pp. 139-152.

Eaton, J. and G. Grossman (1986). “Optimal Trade and Industrial Policy under Oligopoly”, Quarterly Journal of Economics, 101 (2), pp. 383-406.

Economides, N. and S. Salop (1992). “Competition and Integration Among Complements, and Network Market Structure”, The Journal of International Economics, 50, pp. 105-123.

Eichberger, Jürgen (1993). Game Theory for Economists, Academic Press Inc.

Fershtman, C. (1985). “Management Incentives as a Strategic Variable in Duopolistic Environments”, International Journal of Industrial Organization, 3 (2), pp. 245-253.

Fershtman, C. and K. Judd (1987). “Equilibrium Incentives in Oligopoly”, The American Economic Review, 77 (5), pp. 927-940.

Flath, D (1991). “When is it Rational for Firms to Acquire Silent Interest in Rivals?”, International Review of Industrial Organization, 9, pp. 573-583.

Flath, D (1991). “Horizontal Shareholding Interlocks”, Managerial and Decision Economics, 13 (1), pp. 75-77.

Flath, D (1989). “Vertical Integration by Means of Shareholding Interlocks”, International Review of Industrial Organization, 7, pp. 369-380.

González, M. (1993). R & D, Trade Policy and the Paradox of Autarky, Paper presented in the Asset Meeting, December, Bercelona.

Gruenspecht, H. (1988). “Export Subsidies for Differentiated Products”, Journal of International Economics, 24, pp. 331-334.

Helpman, E. and P. Krugman (1990). Trade Policy and Market Structure, Cambridge, MIT Press.

Ishikawa J. and B. Spencer (1999). “Rent-shifting Export Subsidies with an Imported Intermediate Product”, Journal of International Economics, 48, pp. 199-232.

Ishikawa J. (1998). “Expanding the Purchase of a Foreign Intermediate Good: an Analysis of VIEs and Content Protection under Oligopoly”, in R. Sato, and Ramachandran (eds.), Global Integration and Competition, Boston, Kluwer Academic Publishers.

Ishikawa J. and K. Lee (1997). “Backfiring Tariffs in Vertically Related Markets”, Journal of International Economics, 42, pp. 395-423.

Jones, R. and B. Spencer (1988). “Raw Materials, Processing Activities, and Protectionism”, Canadian Journal of Economics, 22 (3), pp. 469-486.

Kleit, A. (1992). “Enforcing Time-Inconsistent Regulations”, Economic Inquiry, 30, pp. 639-648.

Krugman, P. and M. Obstfeld (1994). International Economics: Theory and Policy, Harper Collins Publishers Inc.

Krugman, P. (1989). “Industrial Organization and International Trade”, in R. Schmalensee and R. D. Willing (eds.), Handbook of Industrial Organization, vol. 2, Elsivier Science Publisher.

Neary, P. (1989). Export Subsidies and Price Competition, CEPR Discussion Paper Series, No. 327.

Rodrik, D., and C. Yoon (1989). Strategic Trade Policy (and) When Domestic Firms Compete Against Vertically Integrated Rivals, NBER Working Paper, No. 2919.

Salinger M. (1989). “The Meaning of “Upstream” and “Downstrean” and the Implications of for Modeling Vertical Mergers”, Journal of Industrial Economics, 37, pp. 373-387.

Salinger M. (1988). “Vertical Mergers and Vertical Foreclosure”, Quarterly Journal of Economics, 103, pp. 345-356.

Sklivas, S. (1987). “The Strategic Choice of Managerial Incentives”, Rand Journal of Economics, 18 (3), pp. 452-458.

Spencer B. and Raubitschek (1996). “High-cost Domestic Joint Venture and International Competition: Do Domestic Firms Gain?” International Economic Review, 37 (2), pp. 315-340.

Spencer B. and R. Jones (1992). “Trade and Protection in Vertically Related Markets”, Journal of International Economics, 32, pp. 31-55.

Spencer B. and R. Jones (1991). “Vertical Foreclosure and International Trade Policy”, Review of Economics Studies, 58 (1), pp. 153-70.

Tirole, J. (1988). The Theory of Industrial Organization, The MIT Press.

Vickers, J. (1985). “Delegation and the Theory of the Firm”, The Economic Journal, 95 (0), Conference Supplement, pp. 138-147.

Young, A. R. (1991). “Vertical Structure and Nash Equilibrium: A Note”, The Journal of Industrial Economics, 39 (6), pp. 717-722.

How to Cite
MedranoL. (2001). Trade policy and integration among firms producing complementary products. Estudios Económicos, 16(1), 133-155.
  • Abstract viewed - 519 times
  • PDF downloaded: 473 times