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Vertical Integration as a Source of Hold-up: an Experiment

Allain, Marie-Laure, Chambolle, Claire, Rey, Patrick and Teyssier, Sabrina (2020) Vertical Integration as a Source of Hold-up: an Experiment. TSE Working Paper, n. 20-1062, Toulouse

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In a vertical chain in which two rivals invest before contracting with one of two
competing suppliers, partial vertical integration may create hold-up problems for the
rival. We develop an experiment to test this theoretical prediction in two setups, in
which suppliers can either pre-commit ex ante to appropriating part of the joint profit,
or degrade ex post the support they provide to their customer. Our experimental results confirm that vertical integration creates hold-up problems in both setups. However, we observe more departures from theory in the second one. Bounded rationality and social preferences provide a rationale for these departures.

Item Type: Monograph (Working Paper)
Language: English
Date: January 2020
Place of Publication: Toulouse
Uncontrolled Keywords: Vertical Integration, Hold-up, Experimental Economics, Bounded Rationality, Social Preferences.
JEL Classification: C91 - Laboratory, Individual Behavior
D90 - General
L13 - Oligopoly and Other Imperfect Markets
L41 - Monopolization; Horizontal Anticompetitive Practices
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 13 Jan 2020 13:58
Last Modified: 05 Jun 2020 08:05
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