Vertical foreclosure with the choice of input specifications

Jay Pil Choi, Sang Seung Yi

Research output: Contribution to journalArticle

54 Citations (Scopus)

Abstract

We develop an equilibrium model of vertical foreclosure with the choice of input specifications. Vertical foreclosure occurs as the upstream division of the integrated firm makes a specialized input for its sister downstream division while it would, as an independent firm, provide a generalized input. The changes in incentives with vertical integration can be explained by the externalities the choice of a specialized input entails; vertical integration allows the upstream firm to internalize the benefit of raising the rival firm's costs at the downstream level. We derive conditions for equilibrium vertical foreclosure to occur and discuss its welfare consequences.

Original languageEnglish
Pages (from-to)717-743
Number of pages27
JournalRAND Journal of Economics
Volume31
Issue number4
DOIs
Publication statusPublished - 2000

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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