Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Thursday, December 9, 2010

Vertical mergers, foreclosure and raising rivals' costs: Experimental evidence

Posted by D. Daniel Sokol

Hans-Theo Normann (Düsseldorf Institute for Competition Economics) has posted Vertical mergers, foreclosure and raising rivals' costs: Experimental evidence.

ABSTRACT: The hypothesis that vertically integrated firms have an incentive to foreclose the input market because foreclosure raises its downstream rivals' costs is the subject of much controversy in the theoretical industrial organization literature. A powerful argument against this hypothesis is that, absent commitment, such foreclosure cannot occur in Nash equilibrium. The laboratory data reported in this paper provide experimental evidence in favor of the hypothesis. Markets with a vertically integrated firm are signifiantly less competitive than those where firms are separate. While the experimental results violate the standard equilibrium notion, they are consistent with the quantalresponse generalization of Nash equilibrium.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/12/vertical-mergers-foreclosure-and-raising-rivals-costs-experimental-evidence.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0147e01d65cf970b

Listed below are links to weblogs that reference Vertical mergers, foreclosure and raising rivals' costs: Experimental evidence:

Comments

Post a comment