Market Foreclosure and Strategic Aspects of Vertical Agreements

Leonardo Medrano
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Leonardo Medrano: División de Economía, CIDE. México, D.F. Mexico

Economía Mexicana NUEVA ÉPOCA, 1999, vol. VIII, issue 1, 91-104

Abstract: This paper reviews the arguments about market foreclosure –as an incentive for vertical agreements between upstream and downstream firms– and its effects on welfare. We consider that downstream firms compete in quantities in the final good market and upstream firms compete in quantities in the intermediate good market. In this context we show that a vertical agreement must not contemplate market foreclosure, that is, upstream firms continue participating in intermediate market. Regarding antitrust policy, we show that even vertical agreements aimed at increasing input price faced by other firms may be positive from the welfare viewpoint.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:emc:ecomex:v:8:y:1999:i:1:p:91-104

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