Vertical Foreclosure with the Choice of Input Specifications
AbstractWe 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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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1997-16.
Date of creation: 1997
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- Jay Pil Choi & Sang-Seung Yi, 2000. "Vertical Foreclosure with the Choice of Input Specifications," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 717-743, Winter.
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