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Vertical Foreclosure in Experimental Markets

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Author Info
Martin, Stephen
Normann, Hans-Theo
Snyder, Christopher M

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Abstract

We report the results of experiments designed to test recent theories of vertical foreclosure. Consistent with the theory, vertical integration improves the upstream firm's ability to commit to restricting output to the monopoly level, as does the use of public contracts. Public contracts are not a perfect substitute for vertical integration, however: integration allows more surplus to be extracted from the unintegrated downstream firm, a bargaining effect that has been underemphasized in the recent foreclosure literature. Motivated by some observations that are difficult to reconcile with existing theory, we extend the theory to allow downstream firms to have heterogeneous (rather than purely passive or symmetric) out-of-equilibrium beliefs. Copyright 2001 by the RAND Corporation.

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

Volume (Year): 32 (2001)
Issue (Month): 3 (Autumn)
Pages: 466-96
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Handle: RePEc:rje:randje:v:32:y:2001:i:3:p:466-96

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  1. Vital Anderhub & Werner Güth & Ulrich Kamecke & Hans-Theo Normann, 2003. "Capacity Choices and Price Competition in Experimental Markets," Experimental Economics, Springer, vol. 6(1), pages 27-52, June. [Downloadable!] (restricted)
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  2. Ali Hortacsu & Chad Syverson, 2006. "Cementing Relationships: Vertical Integration, Foreclosure, Productivity, and Prices," Working Papers 06-21, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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  3. Pio Baake & Ulrich Kamecke & Hans-Theo Normann, 2001. "Vertical Integration and Market Foreclosure with Convex Downstream Costs," Discussion Papers of DIW Berlin 260, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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  4. Landeo, Claudia M. & Spier, Kathryn E., 2007. "Naked Exclusion: An Experimental Study of Contracts with Externalities," MPRA Paper 9143, University Library of Munich, Germany. [Downloadable!]
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  5. Dorothea Kuebler, Wieland Mueller and Hans Normann, 2004. "Job market signaling and screening: An experimental comparison," Royal Holloway, University of London: Discussion Papers in Economics 04/02, Department of Economics, Royal Holloway University of London, revised Apr 2004. [Downloadable!]
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  6. Hans-Theo Normann, 2008. "Vertical Integration, Raising Rivals’ Costs and Upstream Collusion," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_30, Max Planck Institute for Research on Collective Goods. [Downloadable!]
  7. Douglas Davis & Oleg Korenok & Robert Reilly, 2009. "Re-matching, information and sequencing effects in posted offer markets," Experimental Economics, Springer, vol. 12(1), pages 65-86, March. [Downloadable!] (restricted)
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  8. Zava Aydemir & Stefan Buehler, 2002. "Estimating Vertical Foreclosure in U.S. Gasoline Supply," Working Papers 0212, University of Zurich, Socioeconomic Institute. [Downloadable!]
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  9. Michael H. Riordan, 2005. "Competitive effects of vertical integration," Discussion Papers 0506-11, Columbia University, Department of Economics. [Downloadable!]
  10. GABSZEWICZ, Jean J. & ZANAJ, Skerdilajda, 2006. "Upstream market foreclosure," CORE Discussion Papers 2006043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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  11. Rey, Patrick & Vergé, Thibaud, 2003. "Bilateral Control with Vertical Contracts," IDEI Working Papers 202, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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