Topic: Vertical Integration, Foreclosure, and Learning-by-Doing: Evidence from the Chinese Electric Vehicle and Power Battery Industries

Speaker: Xiao Junji, Associate Professor, Lingnan University, Hong Kong

Time: March 21, 2024, 15:30

Venue: EMS 440

Abstract: This paper studies the competitive and welfare effects of the vertical integration and foreclosure strategy employed by BYD, the leading Chinese manufacturer in successive oligopoly markets of power batteries and electric vehicles (EV). Our findings reveal that integration generates procompetitive effects by eliminating double marginalization, while foreclosure generates both anti-competitive effects by raising BYD rivals' input prices and efficiency effects by switching battery outputs to firms with less experience while diminishing returns exist in the learning-by-doing process. The counterfactual analysis suggests that BYD would have yielded even higher profits if it had not applied the foreclosure strategy, and consumer welfare would have been higher as well. The study highlights the importance of considering learning-by-doing in assessing the efficiency of vertical integration and foreclosure.


Guest Bio: Xiao Junji, Associate Professor of Economics, Lingnan University, Hong Kong, received his PhD in Economics from the University of Toronto in 2006. His main research areas are industrial organization, environmental economics, and Chinese economy. He has taught at Shanghai University of Finance and Economics, Fudan University, Chinese University of Hong Kong, and University of Technology, Sydney, etc. His research papers have been published in top economics journals such as International Economic Review, Review of Economics and Statistics, Journal of Industrial Economics, International Journal of Industrial Organization, Journal of Environmental Economics and Management, Journal of the Association of Environmental and Resource Economists, and American Journal of Agricultural Economics.