Academic Commons

Reports

Vertical Foreclosure with the Choice of Input Specifications

Choi, Jay Pil; Yi, Sang-Seung

This paper develops an equilibrium model of vertical foreclosure with the choice of input specifications. In this model, vertical foreclosure occurs as the upstream division of the integrated firm makes a specialized input for its sister downstream division while it would, as an independent firm, provide a generalized input. The changes in incentives whit vertical integration allows the upstream firm to internalize the benefit of raising the rival firm's cost at the downstream level. The choice of a specialized input by the integrated firm serves as a natural commitment mechanism not to supply the rival downstream firms, and thus enables us to dispense with the controversial price commitment assumption in the literature. We derive conditions for equilibrium vertical foreclosure to occur and discuss its welfare consequences.

Subjects

Files

More About This Work

Academic Units
Economics
Publisher
Department of Economics, Columbia University
Series
Department of Economics Discussion Papers, 9697-11
Published Here
March 3, 2011

Notes

January 1997

Academic Commons provides global access to research and scholarship produced at Columbia University, Barnard College, Teachers College, Union Theological Seminary and Jewish Theological Seminary. Academic Commons is managed by the Columbia University Libraries.