Vertical Integration, Exclusive Dealing And Asymmetric Equilibrium In International Differentiated Products Oligopoly

It is common for multinational corporations to choose such strategies to competein the host countries as exclusive dealing(ED) or vertical integration (VI) or somecombinations of the two. The two strategies are selected out for research because oftheir similarities and non-substitutability.Our model studies the equilibrium strategy profiles in the presence of these twostrategy spaces, namely exclusive dealing and vertical integration. We conclude thatin a two stage Cournot model, if the first mover chooses VI, then choice of VI is notthe best response of the last mover. But whether he should choose ED or VI+ED tooverride its competitor, depends on the combination of the investment cost structureof ED and end-product differentiation between the two, and vice versa. Therefore,when the combination of the investment cost structure and product differentiationguarantee the feasibility of combined strategies of VI+ED, a rational player willchoose combined strategies to enter the host country;otherwise, they will resort to theopposite strategy to its competitor.This essay works on the following two questions: first, it is by no meansaccidental for the multinational corporations to have special preference on VI or ED;it's equilibrium through rational gaming. Second, it provides a theoretical explanationfor the newly appeared combined entry strategies.