Vertical Integration as a Source of Hold-up

Marie-Laure Allain, Claire Chambolle, Patrick Rey
2015 The Review of Economic Studies  
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; downstream firms 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
more » ... 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. Jel Codes: L13, L41, L42.
doi:10.1093/restud/rdv035 fatcat:cbfjtcdghjhlvoiq5rak6h62gy