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Vertical Integration and Foreclosure: Evidence from Production Network Data

Johannes Boehm and Jan Sonntag
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Jan Sonntag: Département d'économie

No 2018-12, Sciences Po Economics Discussion Papers from Sciences Po Departement of Economics

Abstract: This paper studies the prevalence of vertical market foreclosure using a novel dataset on U.S. and international buyer-seller relationships, and across a large range of industries. We find that relationships are more likely to break when suppliers vertically integrate with one of the buyers’ competitors than when they vertically integrate with an unrelated firm. This relationship holds also, among other things, when conditioning on mergers that follow exogenous downward pressure on the supplier’s stock prices, suggesting that reverse causality is unlikely to explain the result. In contrast, the relationship vanishes when using rumored or announced but not completed integration events. Firms experience a substantial drop in sales when one of their suppliers integrates with one of their competitors. This sales drop is mitigated if the firm has alternative suppliers in place.

Keywords: Mergers and acquisitions; Market foreclosure; Vertical integration; Production networks (search for similar items in EconPapers)
JEL-codes: L14 L42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-ict and nep-net
Date: 2018-12
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