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

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  • Allain, Marie-Laure
  • Chambolle, Claire
  • Rey, Patrick
  • Teyssier, Sabrina

Abstract

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.

Suggested Citation

  • Allain, Marie-Laure & Chambolle, Claire & Rey, Patrick & Teyssier, Sabrina, 2020. "Vertical Integration as a Source of Hold-up: an Experiment," TSE Working Papers 20-1062, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:123940
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    Cited by:

    1. Möllers, Claudia, 2016. "Reputation and foreclosure with vertical integration: Experimental evidence," DICE Discussion Papers 232, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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    More about this item

    Keywords

    Vertical Integration; Hold-up; Experimental Economics; Bounded Rationality; Social Preferences.;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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