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| Author: | Normann, H.T. |
| Title: | Vertical mergers, foreclosure and raising rivals' costs - experimental evidence |
| Journal: | Journal of Industrial Economics
2011 : SEP, VOL 59:3, p.506-527 |
| Index terms: | vertical integration mergers industrial organization markets |
| Freeterms: | foreclosure |
| Language: | eng |
| Abstract: | The hypothesis of vertically integrated firms having an incentive to foreclose the input market as it raises its downstream rivals' costs a controversial subject in the theoretical industrial organization literature. A strong argument against the hypothesis is that, absent commitment, that kind of foreclosure cannot occur in Nash equilibrium. The laboratory data reported in this study provide experimental evidence supporting the hypothesis. Markets with a vertically integrated firm are significantly less competitive than those with separate firms. While the experimental results are contradictory to the standard equilibrium notion, they are consistent with the quantal-response generalization of Nash equilibrium. |
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