Antitrust & Competition Policy Blog

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

Friday, February 8, 2019

Vertical Foreclosure in the Global Production Network

Johannes Boehm (Princeton University); Jan Sonntag (Sciences Po Paris) study Vertical Foreclosure in the Global Production Network.

Abstract: This paper studies the prevalence of market foreclosure using a novel dataset on U.S. and international buyer-seller relationships, and across a large range of industries. We find that relationships are more likely to break when suppliers vertically integrate with one of the buyers' competitors than when they vertically integrate with an unrelated firm. We establish causality using the prevalence of past vertical integration among related parties as an instrument. Foreclosure is more prevalent when suppliers have more market power. Furthermore, we find a substantial drop in performance among foreclosed firms.

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