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Vertical Foreclosure with the Choice of Input Specifications

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Author Info
Jay Pil Choi
Sang-Seung Yi

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Abstract

We develop an equilibrium model of vertical foreclosure with the choice of input specifications. Vertical foreclosure occurs as the upstream division of the integrated firm makes a specialized input for its sister downstream division while it would, as an independent firm, provide a generalized input. The changes in incentives with vertical integration can be explained by the externalities the choice of a specialized input entails; vertical integration allows the upstream firm to internalize the benefit of raising the rival firm's costs at the downstream level. We derive conditions for equilibrium vertical foreclosure to occur and discuss its welfare consequences.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 31 (2000)
Issue (Month): 4 (Winter)
Pages: 717-743
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Handle: RePEc:rje:randje:v:31:y:2000:i:winter:p:717-743

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  1. Ramón Faulí-Oller & Joel Sandonís, 2003. "On The Competitive Effects Of Vertical Integration Under Product Differentiation," Working Papers. Serie AD 2003-31, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  2. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December. [Downloadable!] (restricted)
  3. Hans-Theo Normann, 2004. "Equilibrium Vertical Foreclosure in the Repeated Game," Industrial Organization 0408008, EconWPA. [Downloadable!]
  4. Rachel E. Kranton & Deborah F. Minehart, 2002. "Vertical Foreclosure and Specific Investments," Economics Working Papers 0013, Institute for Advanced Study, School of Social Science. [Downloadable!]
  5. Michiel Bijlsma & Viktoria Kocsis & Victoria Shestalova & Gijsbert Zwart, 2008. "Vertical foreclosure, a policy framework," CPB Documents 157, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  6. José Pontes, 2007. "Networks and firm location," The Annals of Regional Science, Springer, vol. 41(4), pages 897-909, December. [Downloadable!] (restricted)
    Other versions:
    • José Pedro Pontes, 2006. "Networks and Firm Location," Working Papers 2006/09, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
  7. Roman Inderst & Christian Wey, 2003. "Buyer Power and Supplier Incentives," CIG Working Papers SP II 2003-05, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
    Other versions:
  8. Nisvan Erkal, 2003. "Buyer-Supplier Interaction, Asset Specificity, And Product Choice," Department of Economics - Working Papers Series 885, The University of Melbourne. [Downloadable!]
    Other versions:
  9. Zava Aydemir & Stefan Buehler, 2002. "Estimating Vertical Foreclosure in U.S. Gasoline Supply," Working Papers 0212, University of Zurich, Socioeconomic Institute. [Downloadable!]
    Other versions:
  10. Joshua Gans & Catherine de Fontenay, 2004. "Vertical Integration in the Presence of Upstream Competition," Econometric Society 2004 North American Winter Meetings 7, Econometric Society. [Downloadable!]
    Other versions:
  11. Volker Nocke & Lucy White, 2003. "Do Vertical Mergers Facilitate Upstream Collusion?," PIER Working Paper Archive 03-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
    Other versions:
  12. Jose Pedro Pontes, 2005. "Input Specificity and Location," Working Papers 2005/01, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
  13. Guyon, J.P. & Elyakime, B. & Pilon, T., 2003. "La marge d'avenir comme indicateur socio-économique de gestion durable de la forêt des agriculteurs," Economics Working Paper Archive (Toulouse) 26, French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse). [Downloadable!]
  14. Volker Nocke & Lucy White, 2003. "Do Vertical Mergers Facilitate Upstream Collusion? Second Version," PIER Working Paper Archive 05-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 08 Mar 2005. [Downloadable!]
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