Investment specificity, vertical integration and market foreclosure

Frank Bickenbach and Iestyn Williams

No 734, Kiel Working Papers from Kiel Institute for the World Economy

Abstract: In this paper we consider the impact of vertical integration on a retailer's choices of product variety and specific, brand-supporting investment. In an incomplete contract environment, vertical merger encourages investment in integrated supply, and foreclosure of non-integrated manufacturers. Anti-competitive as opposed to efficiency interpretations depend delicately on a trade-off between the benefits of supplier-specific rather than generally applicable retailer investment, and the value of multi-product rather than single product retailing. Where retailers compete, it is shown that vertical integration implements competition reducing, product differentiating investment strategies.

Keywords: incomplete contracts; vertical integration; monopolization (search for similar items in EconPapers)
JEL-codes: L12 L22 L4 (search for similar items in EconPapers)
Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:734

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