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Investment specificity, vertical integration and market foreclosure

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  • Bickenbach, Frank
  • Williams, Iestyn

Abstract

In this paper we consider the impact of vertical integration on a retailer's choices of product variety and specific, brand-supporting investment. In an incomplete contract environment, vertical merger encourages investment in integrated supply, and foreclosure of non-integrated manufacturers. Anti-competitive as opposed to efficiency interpretations depend delicately on a trade-off between the benefits of supplier-specific rather than generally applicable retailer investment, and the value of multi-product rather than single product retailing. Where retailers compete, it is shown that vertical integration implements competition reducing, product differentiating investment strategies.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 734.

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Date of creation: 1996
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Handle: RePEc:kie:kieliw:734

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Related research

Keywords: incomplete contracts; vertical integration; monopolization;

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References

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  1. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
  2. Reiffen, David, 1992. "Equilibrium Vertical Foreclosure: Comment," American Economic Review, American Economic Association, vol. 82(3), pages 694-97, June.
  3. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Gal-Or, Esther, 1991. "Duopolistic vertical restraints," European Economic Review, Elsevier, vol. 35(6), pages 1237-1253, August.
  5. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  6. repec:fth:harver:1493 is not listed on IDEAS
  7. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
  8. Riordan, Michael H. & Williamson, Oliver E., 1985. "Asset specificity and economic organization," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 365-378, December.
  9. Williams, I., 1996. "Integration and investment specificity," Discussion Paper Series In Economics And Econometrics 9614, Economics Division, School of Social Sciences, University of Southampton.
  10. Dixit, Avinash, 1983. "Vertical integration in a monopolistically competitive industry," International Journal of Industrial Organization, Elsevier, vol. 1(1), pages 63-78, March.
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Cited by:
  1. Frank Bickenbach & Lars Kumkar & RĂ¼diger Soltwedel, 1999. "The New Institutional Economics of Antitrust and Regulation," Kiel Working Papers 961, Kiel Institute for the World Economy.

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