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Equilibrium Vertical Foreclosure in the Repeated Game

  • Hans-Theo Normann

    (Royal Holloway, University of London)

This paper analyzes if vertical foreclosure can emerge as an equilibrium outcome of an infinitely repeated game. Foreclosure is profitable due to a 'raising rival's costs' effect but it is not a Nash equilibrium of the static game. The results are that foreclosure is in fact a subgame perfect Nash equilibrium of the repeated game, and it may facilitate collusion compared to the nonintegrated industry. The possibility of a counter merger of the nonintegrated firms negatively affects the likelihood and profitability of collusive foreclosure.

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File URL: http://econwpa.repec.org/eps/io/papers/0408/0408008.pdf
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Paper provided by EconWPA in its series Industrial Organization with number 0408008.

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Length: 18 pages
Date of creation: 30 Aug 2004
Date of revision:
Handle: RePEc:wpa:wuwpio:0408008
Note: Type of Document - pdf; pages: 18. Preliminary draft
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Reiffen, David, 1992. "Equilibrium Vertical Foreclosure: Comment," American Economic Review, American Economic Association, vol. 82(3), pages 694-97, June.
  2. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, June.
  3. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
  4. Choi, J.P. & Yi, S.S., 1997. "Vertical Foreclosure with the Choice of Input Specifications," Discussion Paper 1997-16, Tilburg University, Center for Economic Research.
  5. Riordan, Michael H, 1998. "Anticompetitive Vertical Integration by a Dominant Firm," American Economic Review, American Economic Association, vol. 88(5), pages 1232-48, December.
  6. Church, J. & Gandal, N., 1996. "Systems Competition, Vertical Merger and Foreclosure," Papers 6-96, Tel Aviv - the Sackler Institute of Economic Studies.
  7. Yongmin Chen & Michael H. Riordan, 2003. "Vertical Integration, Exclusive Dealing, and Ex Post Cartelization," Discussion Papers 0203-13, Columbia University, Department of Economics.
  8. Yongmin Chen, 2000. "On Vertical Mergers and Their Competitive Effects," Econometric Society World Congress 2000 Contributed Papers 0383, Econometric Society.
  9. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March.
  10. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1992. "Equilibrium Vertical Foreclosure: Reply," American Economic Review, American Economic Association, vol. 82(3), pages 698-703, June.
  11. Yongmin Chen, 2005. "Vertical Disintegration," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 209-229, 03.
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