Article ID Journal Published Year Pages File Type
5067303 European Economic Review 2011 12 Pages PDF
Abstract

We analyze the incentives of a vertically integrated firm to foreclose downstream rivals in a model of upstream price competition between suppliers of only imperfectly substitutable inputs. Our main motivation is a critical assessment of common assertions that draw inferences from pre-merger observable variables to post-merger incentives to foreclose. In particular, we find that, contrary to some commonly expressed views, high margins on the downstream and low margins on the upstream market are not good predictors for the incentives of a newly integrated firm to foreclose rivals. Besides this contribution to policy, our model also extends existing results in the literature on vertical foreclosure through allowing for the interaction of product differentiation on the upstream and on the downstream market.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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