Thursday, October 8, 2020

Vertical Integration as a Source of Hold-up: an Experiment

Vertical Integration as a Source of Hold-up: an Experiment

By:

Allain, Marie-Laure; Chambolle, Claire; Rey, Patrick; Teyssier, Sabrina

Abstract:

In a vertical chain in which two rivals invest before contracting with one of two competing suppliers, partial vertical integration may create hold-up problems for the rival. We develop an experiment to test this theoretical prediction in two setups, in which suppliers can either pre-commit ex ante to appropriating part of the joint profit, or degrade ex post the support they provide to their customer. Our experimental results confirm that vertical integration creates hold-up problems in both setups. However, we observe more departures from theory in the second one. Bounded rationality and social preferences provide a rationale for these departures.

URL:

http://d.repec.org/n?u=RePEc:tse:wpaper:123940&r=com

https://lawprofessors.typepad.com/antitrustprof_blog/2020/10/vertical-integration-as-a-source-of-hold-up-an-experiment.html

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