Vertical Integration as a Source of Hold-up: an Experiment

Marie-Laure Allain, Claire Chambolle (claire.chambolle@inra.fr), Patrick Rey and Sabrina Teyssier

No 20-1062, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: In a vertical chain in which two rivals invest before contracting with one of two competing suppliers, partial vertical integration may create hold-up problems for the rival. We develop an experiment to test this theoretical prediction in two setups, in which suppliers can either pre-commit ex ante to appropriating part of the joint profit, or degrade ex post the support they provide to their customer. Our experimental results confirm that vertical integration creates hold-up problems in both setups. However, we observe more departures from theory in the second one. Bounded rationality and social preferences provide a rationale for these departures.

Keywords: Vertical Integration; Hold-up; Experimental Economics; Bounded Rationality; Social Preferences. (search for similar items in EconPapers)
JEL-codes: C91 D90 L13 L41 (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-com, nep-cta, nep-exp and nep-ind
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Related works:
Journal Article: Vertical integration as a source of hold-up: An experiment (2021)
Working Paper: Vertical integration as a source of hold-up: An experiment (2021)
Working Paper: Vertical Integration as a Source of Hold-up: an Experiment (2020)
Working Paper: Vertical integration as a source of hold-up: an experiment (2017)
Working Paper: Vertical integration as a source of hold-up: an experiment (2015)
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