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Equilibrium Vertical Foreclosure in the Repeated Game

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Author Info
Hans-Theo Normann (Royal Holloway, University of London)

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Abstract

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://129.3.20.41/eps/io/papers/0408/0408008.pdf
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Publisher Info
Paper provided by EconWPA in its series Industrial Organization with number 0408008.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
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
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Web page: http://129.3.20.41

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Related research
Keywords: foreclosure; vertical integration; collusion;

Other versions of this item:

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Chen, Yongmin, 2001. "On Vertical Mergers and Their Competitive Effects," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 667-85, Winter.
    Other versions:
  2. Reiffen, David, 1992. "Equilibrium Vertical Foreclosure: Comment," American Economic Review, American Economic Association, vol. 82(3), pages 694-97, June. [Downloadable!] (restricted)
  3. Jay Pil Choi & Sang-Seung Yi, 2000. "Vertical Foreclosure with the Choice of Input Specifications," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 717-743, Winter.
  4. 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. [Downloadable!] (restricted)
  5. Yongmin Chen, 2005. "Vertical Disintegration," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 14(1), pages 209-229, 03. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Church, J. & Gandal, N., 1996. "Systems Competition, Vertical Merger and Foreclosure," Papers 6-96, Tel Aviv - the Sackler Institute of Economic Studies.
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  8. Riordan, Michael H, 1998. "Anticompetitive Vertical Integration by a Dominant Firm," American Economic Review, American Economic Association, vol. 88(5), pages 1232-48, December. [Downloadable!] (restricted)
    Other versions:
  9. 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. [Downloadable!] (restricted)
  10. Yongmin Chen & Michael H. Riordan, 2003. "Vertical Integration, Exclusive Dealing, and Ex Post Cartelization," Discussion Papers 0203-13, Columbia University, Department of Economics. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hans-Theo Normann, 2008. "Vertical Integration, Raising Rivals’ Costs and Upstream Collusion," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_30, Max Planck Institute for Research on Collective Goods. [Downloadable!]
  2. Pedro Mendi, 2009. "Backward integration and collusion in a duopoly model with asymmetric costs," Journal of Economics, Springer, vol. 96(2), pages 95-112, March. [Downloadable!] (restricted)
  3. Pedro Mendi, 2005. "Vertical Integration, Collusion Downstream, and Partial Market Foreclosure," Faculty Working Papers 17/05, School of Economics and Business Administration, University of Navarra. [Downloadable!]
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This page was last updated on 2009-10-17.

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