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Option Contracts and Vertical Foreclosure

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  • Ching-to Albert Ma

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Abstract

A model of vertical integration is studied. Upstream firms sell differentiated inputs; downstream firms bundle them to make final products. Downstream products are sold as option contracts, which allow consumers to choose from a set of commodities at predetermined prices. The model is illustrated by examples in telecommunication and health markets. Equilibria of the integration game must result in upstream input foreclosure and downstream monopolization. Consumers may or may not benefit from integration. Copyright (c) 1997 Massachusetts Institute of Technology.
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  • Ching-to Albert Ma, 1995. "Option Contracts and Vertical Foreclosure," Papers 0061, Boston University - Industry Studies Programme.
  • Handle: RePEc:fth:bostin:0061
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    Cited by:

    1. David Bardey & Giancarlo Buitrago, 2015. "Integración vertical en el sector de la salud colombiano," DOCUMENTOS CEDE 014069, UNIVERSIDAD DE LOS ANDES-CEDE.
    2. Rachel E. Kranton & Deborah F. Minehart, 2002. "Vertical Foreclosure and Specific Investments," Economics Working Papers 0013, Institute for Advanced Study, School of Social Science.
    3. Sorek Gilad, 2016. "Competition and Product Choice in Option Demand Markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 785-805, April.
    4. Noriaki Matsushima, 2009. "VERTICAL MERGERS AND PRODUCT DIFFERENTIATION -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(4), pages 812-834, December.
    5. Oliver Budzinski & Katharina Wacker, 2007. "The Prohibition Of The Proposed Springer-Prosiebensat.1 Merger: How Much Economics In German Merger Control?," Journal of Competition Law and Economics, Oxford University Press, vol. 3(2), pages 281-306.
    6. Micola, Augusto Rupérez & Banal-Estañol, Albert & Bunn, Derek W., 2008. "Incentives and coordination in vertically related energy markets," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 381-393, August.
    7. Gaynor, Martin & Town, Robert J., 2011. "Competition in Health Care Markets," Handbook of Health Economics, Elsevier.
    8. Yongmin Chen & Michael H. Riordan, 2007. "Vertical integration, exclusive dealing, and expost cartelization," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 1-21, March.
    9. Choi, Jay Pil & Yi, Sang-Seung, 2016. "An equilibrium model of investment-reducing vertical integration," Research in Economics, Elsevier, vol. 70(4), pages 659-676.
    10. David Bardey & Jean-Charles Rochet, 2010. "Competition Among Health Plans: A Two-Sided Market Approach," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 435-451, June.
    11. Baranes, E. & Bardey, D., 2004. "Competition in Health Care Markets and Vertical Restraints," Cahiers du LASER (LASER Working Papers) 2004.13, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1.
    12. Sorek, Gilad, 2016. "Competition and consumer choice in option demand markets," Economics Letters, Elsevier, vol. 146(C), pages 13-16.
    13. Biglaiser, Gary & Vettas, Nikolaos, 2004. "Dynamic Price Competition with Capacity Constraints and Strategic Buyers," CEPR Discussion Papers 4315, C.E.P.R. Discussion Papers.
    14. Spiegel, Yossi, 2013. "Backward integration, forward integration, and vertical foreclosure," CEPR Discussion Papers 9617, C.E.P.R. Discussion Papers.
    15. Argenton, Cédric, 2006. "Exclusive Quality," SSE/EFI Working Paper Series in Economics and Finance 640, Stockholm School of Economics, revised 05 Jun 2007.
    16. Allain, Marie-Laure & Chambolle, Claire & Rey, Patrick, 2011. "Vertical Integration, Information and Foreclosure," IDEI Working Papers 673, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2011.
    17. Gilad Sorek, 2015. "Health Insurance and Competition in Health Care Markets," Auburn Economics Working Paper Series auwp2015-03, Department of Economics, Auburn University.
    18. Edmond Baranes & David Bardey, 2015. "Competition between health maintenance organizations and nonintegrated health insurance companies in health insurance markets," Health Economics Review, Springer, vol. 5(1), pages 1-9, December.
    19. Matsushima, Noriaki & Mizuno, Tomomichi, 2013. "Vertical separation as a defense against strong suppliers," European Journal of Operational Research, Elsevier, vol. 228(1), pages 208-216.

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