Thursday, January 12, 2012
Posted by D. Daniel Sokol
Ioannis N. Pinopoulos (Department of Economics, University of Macedonia) discusses Input foreclosure under alternative entry conditions in the upstream market.
ABSTRACT: We analyze a successive vertical Cournot oligopoly model with homogeneous intermediate and final goods. Under restricted entry in both upstream and downstream markets, the input price continuously falls on a sequential merger path. Partial input foreclosure never occurs. However, when there is free entry in the upstream market, we find that the input price initially falls but eventually rises as incremental vertical mergers occur. Thus, under upstream free-entry equilibrium, the possibility of partial input foreclosure arises.