Market competition can lead to 'too much' or 'too little' integration.
Firms make decisions about how much to integrate based on their productivity and market conditions. This study found that besides the price effect, there is also a revenue share effect that influences integration decisions. Depending on firm productivity and market prices, more or fewer firms may choose to integrate. This can lead to market equilibria that are not efficient in terms of ownership. The findings challenge existing research and have important implications for real-world business strategies and policies.