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Investment specificity, vertical integration and market foreclosure

  • Bickenbach, Frank
  • Williams, Iestyn

In this paper we consider the impact of vertical integration on a retailer's choices of product variety and specific, brand-supporting investment. In an incomplete contract environment, vertical merger encourages investment in integrated supply, and foreclosure of non-integrated manufacturers. Anti-competitive as opposed to efficiency interpretations depend delicately on a trade-off between the benefits of supplier-specific rather than generally applicable retailer investment, and the value of multi-product rather than single product retailing. Where retailers compete, it is shown that vertical integration implements competition reducing, product differentiating investment strategies.

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File URL: http://econstor.eu/bitstream/10419/885/1/198051816.pdf
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 734.

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Date of creation: 1996
Date of revision:
Handle: RePEc:kie:kieliw:734
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  1. repec:fth:harver:1493 is not listed on IDEAS
  2. Bonanno, Giacomo & Vickers, John, 1988. "Vertical Separation," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 257-65, March.
  3. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  4. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, vol. 103(2), pages 345-56, May.
  5. Riordan, Michael H. & Williamson, Oliver E., 1985. "Asset specificity and economic organization," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 365-378, December.
  6. Chaim Fershtman & Kenneth L Judd, 1984. "Equilibrium Incentives in Oligopoly," Discussion Papers 642, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Williams, I., 1996. "Integration and investment specificity," Discussion Paper Series In Economics And Econometrics 9614, Economics Division, School of Social Sciences, University of Southampton.
  8. Gal-Or, Esther, 1991. "Duopolistic vertical restraints," European Economic Review, Elsevier, vol. 35(6), pages 1237-1253, August.
  9. Reiffen, David, 1992. "Equilibrium Vertical Foreclosure: Comment," American Economic Review, American Economic Association, vol. 82(3), pages 694-97, June.
  10. Dixit, Avinash, 1983. "Vertical integration in a monopolistically competitive industry," International Journal of Industrial Organization, Elsevier, vol. 1(1), pages 63-78, March.
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