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Option Contracts and Vertical Foreclosure

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  • Ching-To Albert Ma

Abstract

A model of vertical integration is studied. Upstream firms sell differentiated inputs; downstream firms bundle them to make final products. Downstream products are sold as option contracts, which allow consumers to choose from a set of commodities at predetermined prices. The model is illustrated by examples in telecommunication and health markets. Equilibria of the integration game must result in upstream input foreclosure and downstream monopolization. Consumers may or may not benefit from integration. Copyright (c) 1997 Massachusetts Institute of Technology.

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Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 6 (1997)
Issue (Month): 4 (December)
Pages: 725-753

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Handle: RePEc:bla:jemstr:v:6:y:1997:i:4:p:725-753

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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Cited by:
  1. Argenton, C., 2008. "Exclusive Quality," Discussion Paper 2008-007, Tilburg University, Tilburg Law and Economic Center.
  2. Rachel E. Kranton & Deborah F. Minehart, 2002. "Vertical Foreclosure and Specific Investments," Economics Working Papers 0013, Institute for Advanced Study, School of Social Science.
  3. David Bardey & Jean-Charles Rochet, 2009. "Competition among health plans: a two-sided market approach," DOCUMENTOS DE TRABAJO 005217, UNIVERSIDAD DEL ROSARIO.
  4. Micola, Augusto Rupérez & Banal-Estañol, Albert & Bunn, Derek W., 2008. "Incentives and coordination in vertically related energy markets," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 381-393, August.
  5. Martin Gaynor & Robert J Town, 2012. "Competition in Health Care Markets," The Centre for Market and Public Organisation 12/282, Department of Economics, University of Bristol, UK.
  6. Matsushima, Noriaki & Mizuno, Tomomichi, 2013. "Vertical separation as a defense against strong suppliers," European Journal of Operational Research, Elsevier, vol. 228(1), pages 208-216.
  7. Baranes, E. & Bardey, D., 2004. "Competition in Health Care Markets and Vertical Restraints," Cahiers du LASER (LASER Working Papers) 2004.13, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1.
  8. Oilver Budzinski & Katharina Wacker, 2007. "The Prohibition of the Proposed Springer-ProSiebenSat.1-Merger: How much Economics in German Merger Control?," Marburg Working Papers on Economics 200704, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  9. Biglaiser, Gary & Vettas, Nikolaos, 2004. "Dynamic Price Competition with Capacity Constraints and Strategic Buyers," CEPR Discussion Papers 4315, C.E.P.R. Discussion Papers.

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