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Vertical Integration as a Source of Hold-up: an Experiment

Author

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  • Marie-Laure ALLAIN

    (CREST, CNRS, Ecole Polytechnique, Institut Polytechnique de Paris, Palaiseau, France)

  • Claire CHAMBOLLE

    (Université Paris-Saclay, INRAE, UR ALISS, 94205, Ivry-sur-Seine, France; CREST, Institut Polytechnique de Paris)

  • Patrick REY

    (Toulouse School of Economics, University Toulouse Capitole, Toulouse, France)

  • Sabrina TEYSSIER

    (Univ. Grenoble Alpes, INRA, CNRS, Grenoble INP, GAEL, 38000 Grenoble, France)

Abstract

In a vertical chain in which two rivals invest before contracting with one of two competing suppliers, partial vertical integration may create hold-up problems for the rival. We develop an experiment to test this theoretical prediction in two setups, in which suppliers can either pre-commit ex ante to appropriating part of the joint profit, or degrade ex post the support they provide to their customer. Our experimental results confirm that vertical integration creates hold-up problems in both setups. However, we observe more departures from theory in the second one. Bounded rationality and social preferences provide a rationale for these departures.

Suggested Citation

  • Marie-Laure ALLAIN & Claire CHAMBOLLE & Patrick REY & Sabrina TEYSSIER, 2020. "Vertical Integration as a Source of Hold-up: an Experiment," Working Papers 2020-09, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2020-09
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    References listed on IDEAS

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    Cited by:

    1. Möllers, Claudia, 2016. "Reputation and foreclosure with vertical integration: Experimental evidence," DICE Discussion Papers 232, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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    More about this item

    Keywords

    Vertical Integration; Hold-up; Experimental Economics; Bounded Rationality; Social Preferences.;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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