Dynamic Vertical Foreclosure

Chiara Fumagalli and Massimo Motta ()

No 1899, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: This paper shows that vertical foreclosure can have a dynamic rationale. By refusing to supply an efficient downstream rival, a vertically integrated incumbent sacrifices current profits but can exclude the rival by depriving it of the critical profits it needs to be successful. In turn, monopolising the downstream market may prevent the incumbent from losing most of its future profits because: (a) it allows the incumbent to extract more rents from an efficient upstream rival if future upstream entry cannot be discouraged; or (b) it also deters future upstream entry by weakening competition for the input and reducing the post-entry profits of the prospective upstream competitor.

Keywords: Inefficient foreclosure; Refusal to supply; Scale economies; Exclusion; Monopolisation (search for similar items in EconPapers)
JEL-codes: K21 L41 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2018
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Dynamic Vertical Foreclosure (2019)
Working Paper: Dynamic Vertical Foreclosure (2019)
Working Paper: Dynamic Vertical Foreclosure (2017)
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