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THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.71, # 1, 2014, pp. 4-25

In cases where integration cannot cause sharp reduction of production expenses, vertically

integrated enterprises compete with disintegrated enterprises in markets. For example, some

producers of air conditioners produce their own compressors (many producers of air conditioners

purchase compressors from other producers). Work of corrugating and box-making machines

may be an example for this. Corrugating machine produces a corrugated carton from paper and

adhesive. Box-making machines are a set of devices making ready boxes by cutting, sealing and

bending corrugated cartons. In most cases, box-making corrugated units and subsequent

machines in the technological chain are a property owned by single enterprise and situated in the

same building. However, sometimes a certain production belongs to far-located different

enterprises and therefore is separated from another production. In light of such arrangement

operations are undertaken as market transactions of enterprises operating simultaneously. Each

of these enterprises makes efforts to be specialized on production of particular type of boxes.

When enterprises at different levels of integration do not feel pressure of production expenses,

enterprises established as a result of demonopolization do not require this degree of vertical

integration and confine themselves with making corrections in vertical section. This correction in

vertical section is sufficient for enhancing competition.

5. Example of demonopolization

Below is an example for demonopolization of a vertically integrated monopoly engaged in retail

sale of foodstuffs. This example illustrates in a simplified form the analysis of horizontal and vertical

mutual relations among funds, and the influence of large-scale changes of one level on structure of

property of another level. The example is hypothetical nature; in practice, barriers to the entry of retail

trade of foodstuffs are few enough and demonopolization with detailed estimates is not necessary.

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