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Vertical Integration as a Source of Hold-up

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

No 836, IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse

Abstract: While vertical integration is traditionally seen as a solution to the hold-up problem, this paper highlights instead that it can generate hold-up problems — for rivals. We first consider a successive duopoly where competition among suppliers eliminates any risk of hold-up; downstreamfirms thus obtain the full return from their investments. We then show that vertical integration creates hold-up concerns for the downstream rival, by affecting the integrated supplier’s incentives from both ex ante and ex post standpoints. We also provide illustrations in terms of standard industrial organization models and of antitrust cases, and discuss the robustness of the insights.

Keywords: Vertical Integration; Hold-up; Incomplete contracts; Vertical foreclosure (search for similar items in EconPapers)
JEL-codes: L13 L41 L42 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

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Related works:
Journal Article: Vertical Integration as a Source of Hold-up (2016) Downloads
Working Paper: Vertical Integration as a Source of Hold-up (2015) Downloads
Working Paper: Vertical Integration as a Source of Hold-up (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ide:wpaper:28541

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