Option Contracts and Vertical Foreclosure

Ching-to Ma

Journal of Economics & Management Strategy, 1997, vol. 6, issue 4, 725-753

Abstract: A model of vertical integration is studied. Upstream firms sell differentiated inputs; downstream firms bundle them to make final products. Downstream products are sold as option contracts, which allow consumers to choose from a set of commodities at predetermined prices. The model is illustrated by examples in telecommunication and health markets. Equilibria of the integration game must result in upstream input foreclosure and downstream monopolization. Consumers may or may not benefit from integration.

Date: 1997
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https://doi.org/10.1111/j.1430-9134.1997.00725.x

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Working Paper: Option Contracts and Vertical Foreclosure (1995)
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