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Investment specificity, vertical integration and market foreclosure

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  • Bickenbach, Frank
  • Williams, Iestyn

Abstract

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.

Suggested Citation

  • Bickenbach, Frank & Williams, Iestyn, 1996. "Investment specificity, vertical integration and market foreclosure," Kiel Working Papers 734, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:734
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    References listed on IDEAS

    as
    1. Patrick Bolton & Michael D. Whinston, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 121-148.
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    7. repec:fth:harver:1493 is not listed on IDEAS
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    9. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    incomplete contracts; vertical integration; monopolization;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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