Vertical Integration as a Source of Hold-up

Marie-Laure Allain, Claire Chambolle () and Patrick Rey

The Review of Economic Studies, 2016, vol. 83, issue 1, 1-25

Abstract: While vertical integration is traditionally seen as a solution to the hold-up problem, this article highlights instead that it can generate hold-up problems—for rivals. We consider a successive duopoly where downstream firms invest and then secure support from an upstream supplier. We first show that vertical integration generates ex ante incentives to create hold-up problems: an integrated supplier is willing to pre-commit itself to appropriating or dissipating part of its customer's profits, to expose the independent rival to being held-up by the other supplier, and discourage in this way the rival's investment. We then show that, even in the absence of any pre-commitment, vertical integration also creates hold-up problems ex post when degrading the quality of the support provided to one downstream firm benefits its rival. We also provide illustrations in terms of standard industrial organization models and of antitrust cases, and discuss the robustness of the insights.

Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (30)

Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdv035 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Vertical Integration as a Source of Hold-up (2016)
Working Paper: Vertical Integration as a Source of Hold-up (2015)
Working Paper: Vertical Integration as a Source of Hold-up (2014)
Working Paper: Vertical Integration as a Source of Hold-up (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:83:y:2016:i:1:p:1-25.

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().