Vertical Foreclosure Versus Downstream Competition with Capital Precommitment

Posted: 2 Sep 2004

See all articles by Pio Baake

Pio Baake

German Institute for Economic Research (DIW Berlin)

Ulrich Kamecke

Humboldt University of Berlin - Faculty of Economics

Hans-Theo Normann

Heinrich Heine University Dusseldorf - Department of Economics; Max Planck Institute for Research on Collective Goods

Abstract

The recent literature on vertical foreclosure suggests that vertical integration can have the anticompetitive effect of enabling an upstream firm to commit to restricting output to downstream firms at the monopoly level. We allow the upstream firm to make an ex-ante capital precommitment. We show that, if integration is outlawed, the upstream firm will distort capital downward as an alternative device to restrict output. We show that this alternative may be socially less efficient than vertical integration.

Keywords: Foreclosure, commitment, vertical restraints

JEL Classification: C72, C73, D82, L10

Suggested Citation

Baake, Pio and Kamecke, Ulrich and Normann, Hans-Theo, Vertical Foreclosure Versus Downstream Competition with Capital Precommitment. Available at SSRN: https://ssrn.com/abstract=585382

Pio Baake

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Ulrich Kamecke

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
D-10178 Berlin
Germany
(49)-(30)-2093 5785 (Phone)
(49)-(39)-2093 5787 (Fax)

Hans-Theo Normann (Contact Author)

Heinrich Heine University Dusseldorf - Department of Economics ( email )

Duesseldorf
Germany

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

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