Vertical Integration as a Source of Hold-up

Allain, Marie-Laure, Rey, Patrick and Chambolle, Claire (2016) Vertical Integration as a Source of Hold-up. Review of Economic Studies, 83 (1). pp. 1-25.

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Official URL: http://tse-fr.eu/pub/30451

Abstract

While vertical integration is traditionally seen as a solution to the hold-up problem, this paper highlights instead that it can generate hold-up problems — for rivals. We first consider a successive duopoly where competition among suppliers eliminates any risk of hold-up; downstreamfirms thus obtain the full return from their investments. We then show that vertical integration creates hold-up concerns for the downstream rival, by affecting the integrated supplier’s incentives from both ex ante and ex post standpoints. We also provide illustrations in terms of standard industrial organization models and of antitrust cases, and discuss the robustness of the insights.

Item Type: Article
Language: English
Date: January 2016
Refereed: Yes
Uncontrolled Keywords: Vertical Integration, Hold-up, Incomplete contracts, Vertical foreclosure
JEL codes: L13 - Oligopoly and Other Imperfect Markets
L41 - Monopolization; Horizontal Anticompetitive Practices
L42 - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 13 May 2016 12:16
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:30451
URI: http://publications.ut-capitole.fr/id/eprint/21681

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