Reputation and foreclosure with vertical integration: Experimental evidence

Claudia Möllers

No 232, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: Building on the seminal paper of Ordover, Saloner and Salop (1990), I study the role of reputation building on foreclosure in laboratory experiments. In one-shot interactions, upstream firms can choose to build a reputation by revealing their price history to the current upstream competitor. In particular, integrated firms can establish a reputation to foreclose the input market.an outcome that would otherwise not be tenable due to a commitment problem. I get three main results: First, withdrawal from the input market is three times more common with reputation building of the integrated firm. Second, the anticompetitive effects are much stronger when the integrated firm builds a reputation. Third, integrated firms choose to build a reputation significantly more often than non-integrated firms. Markets with reputation building of the integrated firm are ten times more often monopolized than without.

Keywords: vertical restraints; commitment; reputation; experiments (search for similar items in EconPapers)
JEL-codes: C72 C90 D43 D83 L42 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-bec, nep-com and nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:232

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