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Dynamic Vertical Foreclosure

Author

Listed:
  • Chiara Fumagalli
  • Massimo Motta

Abstract

This paper shows that vertical foreclosure can have a dynamic rationale. By refusing to supply an efficient downstream rival, a vertically integrated incumbent sacrifices current profits but can exclude the rival by depriving it of the critical profits it needs to be successful. In turn, monopolizing the downstream market may prevent the incumbent from losing most of its future profits because it allows the incumbent to extract more rents from an efficient upstream rival if future upstream entry cannot be discouraged, and it also deters future upstream entry by weakening competition for the input and reducing the postentry profits of the prospective upstream competitor.

Suggested Citation

  • Chiara Fumagalli & Massimo Motta, 2020. "Dynamic Vertical Foreclosure," Journal of Law and Economics, University of Chicago Press, vol. 63(4), pages 763-812.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/709584
    DOI: 10.1086/709584
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    Cited by:

    1. Fumagalli, Chiara & Motta, Massimo, 2020. "Tying in evolving industries, when future entry cannot be deterred," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    2. Motta, Massimo & Peitz, Martin, 2021. "Big tech mergers," Information Economics and Policy, Elsevier, vol. 54(C).
    3. Perrone, Helena, 2025. "Chips in on a merger: The Arm-Nvidia case," International Journal of Industrial Organization, Elsevier, vol. 98(C).
    4. Hunold, Matthias & Schad, Jannika, 2023. "Single monopoly profits, vertical mergers, and downstream foreclosure," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    5. Massimo Motta & Martin Peitz, 2023. "Denial of Interoperability and Future First-Party Entry," CRC TR 224 Discussion Paper Series crctr224_2023_447, University of Bonn and University of Mannheim, Germany.
    6. Massimo Motta, 2022. "Self-preferencing and foreclosure in digital markets: Theories of harm for abuse cases," Economics Working Papers 1851, Department of Economics and Business, Universitat Pompeu Fabra.
    7. Jullien, Bruno & Sand-Zantman, Wilfried, 2021. "The Economics of Platforms: A Theory Guide for Competition Policy," Information Economics and Policy, Elsevier, vol. 54(C).
    8. Motta, Massimo, 2023. "Self-preferencing and foreclosure in digital markets: Theories of harm for abuse cases," International Journal of Industrial Organization, Elsevier, vol. 90(C).
    9. Helena Perrone, 2025. "Chips in on a Merger: The Arm-Nvidia Case," CRC TR 224 Discussion Paper Series crctr224_2025_647, University of Bonn and University of Mannheim, Germany.
    10. Chiara Fumagalli & Massimo Motta, 2024. "Economic Principles for the Enforcement of Abuse of Dominance Provisions," Working Papers 1431, Barcelona School of Economics.
    11. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2023. "Defending Home against Giants: Exclusive Dealing as a Survival Strategy for Local Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 71(2), pages 441-463, June.
    12. Niels Frank & Mitja Kleczka & Erion Shtjefanaku, 2025. "Mandated MVNO access and MNO investment in mobile network markets: evidence from Germany and Spain," Journal of Regulatory Economics, Springer, vol. 67(1), pages 29-60, June.
    13. Elpiniki Bakaouka, 2024. "Horizontal licensing in vertically related markets," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 15(1), pages 57-94, March.
    14. Luciano Fanti & Domenico Buccella & Luca Gori, 2023. "R&D subsidies in a duopoly market with outsourcing to the rival firm," Bulletin of Economic Research, Wiley Blackwell, vol. 75(1), pages 100-110, January.

    More about this item

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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