Equilibrium Vertical Foreclosure in the Repeated Game
AbstractThis paper analyzes if vertical foreclosure can emerge as an equilibrium outcome of an infinitely repeated game. Foreclosure is profitable due to a 'raising rival's costs' effect but it is not a Nash equilibrium of the static game. The results are that foreclosure is in fact a subgame perfect Nash equilibrium of the repeated game, and it may facilitate collusion compared to the nonintegrated industry. The possibility of a counter merger of the nonintegrated firms negatively affects the likelihood and profitability of collusive foreclosure.
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Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 0408008.
Length: 18 pages
Date of creation: 30 Aug 2004
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foreclosure; vertical integration; collusion;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-09-05 (All new papers)
- NEP-COM-2004-09-05 (Industrial Competition)
- NEP-MIC-2004-09-05 (Microeconomics)
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