Option Contracts and Vertical Foreclosure
AbstractA 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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Bibliographic InfoPaper provided by Boston University - Industry Studies Programme in its series Papers with number 0061.
Date of creation: Oct 1995
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