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Vertical Foreclosure, Technological Choice, and Entry on the Intermediate Market

Eric Avenel () and Corinne Barlet

Journal of Economics & Management Strategy, 2000, vol. 9, issue 2, 211-230

Abstract: This paper analyzes the profitability of vertical integration for an upstream monopoly facing a potential competitor. We show that it depends on the technology used by the firm when it integrates. We distinguish two types of technologies: standard technologies, used by nonintegrated firms, and nonstandard technologies, reserved for integrated firms and implying the complete foreclosure of nonintegrated firms. Vertical integration with the adoption of a nonstandard technology dominates vertical integration with the adoption of a standard technology and is profitable, as long as the degree of competition in the downstream industry is sufficiently low. Copyright (c) 2000 Massachusetts Institute of Technology.

Date: 2000
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