Antitrust & Competition Policy Blog

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

Friday, February 17, 2017

Reputation and foreclosure with vertical integration: Experimental evidence

Claudia Mollers discusses Reputation and foreclosure with vertical integration: Experimental evidence.

ABSTRACT: Building on the seminal paper of Ordover, Saloner and Salop (1990), I study the role of reputation building on foreclosure in laboratory experiments. In one-shot interactions, upstream firms can choose to build a reputation by revealing their price history to the current upstream competitor. In particular, integrated firms can establish a reputation to foreclose the input market.an outcome that would otherwise not be tenable due to a commitment problem. I get three main results: First, withdrawal from the input market is three times more common with reputation building of the integrated firm. Second, the anticompetitive effects are much stronger when the integrated firm builds a reputation. Third, integrated firms choose to build a reputation significantly more often than non-integrated firms. Markets with reputation building of the integrated firm are ten times more often monopolized than without.

http://lawprofessors.typepad.com/antitrustprof_blog/2017/02/reputation-and-foreclosure-with-vertical-integration-experimental-evidence.html

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