Investment specificity, vertical integration and market foreclosure
AbstractIn 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 InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 734.
Date of creation: 1996
Date of revision:
incomplete contracts; vertical integration; monopolization;
Find related papers by JEL classification:
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L4 - Industrial Organization - - Antitrust Issues and Policies
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