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Downstream Vertical Foreclosure and Upstream Innovation

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  • Stefanadis, Christodoulos

Abstract

The author examines a link between downstream foreclosure and upstream innovation. The crucial ingredient of the model is the presence of dynamic economies of scale upstream in the form of competition in R&D. The reason an upstream supplier has a captive buyer is to force rival suppliers to incur the disadvantages of low-scale production and discourage them from innovating. The downstream buyer is offered favorable terms and is 'convinced' to sign an exclusive supply contract and accept captivity. In this context, downstream foreclosure may reduce consumer welfare. Copyright 1997 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 45 (1997)
Issue (Month): 4 (December)
Pages: 445-56

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Handle: RePEc:bla:jindec:v:45:y:1997:i:4:p:445-56

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Cited by:
  1. Yongmin Chen & David E. M. Sappington, 2011. "Exclusive Contracts, Innovation, and Welfare," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 194-220, May.
  2. Miller, David A., 2008. "Invention under uncertainty and the threat of ex post entry," European Economic Review, Elsevier, vol. 52(3), pages 387-412, April.
  3. Suzuki, Ayako, 2009. "Market foreclosure and vertical merger: A case study of the vertical merger between Turner Broadcasting and Time Warner," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 27(4), pages 532-543, July.
  4. Karantininis, Kostas & Sauer, Johannes & Furtan, William Hartley, 2010. "Innovation and integration in the agri-food industry," Food Policy, Elsevier, Elsevier, vol. 35(2), pages 112-120, April.
  5. Roig, Guillem, 2014. "Competition and the Hold‐U p Problem: a Setting with Non‐exclusive Contracts," TSE Working Papers, Toulouse School of Economics (TSE) 14-481, Toulouse School of Economics (TSE).
  6. Roberto Hernan & Praveen Kujal, 2006. "Vertical Integration, Market Foreclosure And Quality Investment," Economics Working Papers we061405, Universidad Carlos III, Departamento de Economía.
  7. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, Elsevier, Elsevier.
  8. Mikko Packalen, 2011. "Market Share Exclusion," Working Papers 1103, University of Waterloo, Department of Economics, revised Aug 2011.
  9. Arijit Mukherjee & Piercarlo Zanchettin, 2012. "Vertical integration and product differentiation," Discussion Papers in Economics 12/17, Department of Economics, University of Leicester, revised Sep 2012.
  10. Köhler, Christian & Rammer, Christian, 2012. "Buyer power and suppliers' incentives to innovate," ZEW Discussion Papers 12-058, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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