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Vertical foreclosure: a policy framework

Author

Listed:
  • Michiel Bijlsma

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Viktoria Kocsis

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Victoria Shestalova

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Gijsbert Zwart

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

Whenever you phone your mother, switch on the light, or buy health insurance you purchase a service or product from a chain of vertically related industries. Providers of these products or services need access to a telecommunications network, an electricity network or to health care services. In such industries, integration and exclusive contracts between vertically related firms may have important welfare enhancing effects, but can also deny or limit rivals' access to input or customers, leading to foreclosure. Foreclosure can harm welfare if it reduces competition. This document provides policymakers with a framework to assess the potential for welfare reducing foreclosure of vertical integration and vertical restraints and describes possible remedies. The framework consists of four steps. Each step requires its own detailed analysis. First, market power should exist either upstream or downstream. Second, a theory of foreclosure should be formulated that explains why foreclosure is a profitable equilibrium strategy. Third, the existence and magnitude of potential welfare enhancing effects of the vertical restrains or vertical integration should be assessed. Fourth, suitable policies to address foreclosure should be found.

Suggested Citation

  • Michiel Bijlsma & Viktoria Kocsis & Victoria Shestalova & Gijsbert Zwart, 2008. "Vertical foreclosure: a policy framework," CPB Document 157, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:docmnt:157
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    References listed on IDEAS

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    Cited by:

    1. Michiel Bijlsma & Viktoria Kocsis & Nelli Valmari, 2008. "Competition and access price regulation in the broadband market," CPB Discussion Paper 106, CPB Netherlands Bureau for Economic Policy Analysis.
    2. David Bardey & Giancarlo Buitrago, 2015. "Integración vertical en el sector de la salud colombiano," Documentos CEDE 014069, Universidad de los Andes - CEDE.
    3. Paul Koutstaal & Michiel Bijlsma & Gijsbert Zwart & X. van Tilburg, 2009. "Market performance and distributional effects on renewable energy markets," CPB Document 190, CPB Netherlands Bureau for Economic Policy Analysis.

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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