Monday, October 14, 2024
Tying, Vertical Integration and Pareto-Improving Foreclosure
Tying, Vertical Integration and Pareto-Improving Foreclosure
Abstract
This paper examines the relationship between tying and vertical integration when an input monopolist can require its downstream buyer to purchase a competitively supplied input from it, or integrate forward in the downstream market. Both practices would result in foreclosure of independent suppliers of the other input. We show tying is an imperfect substitute for vertical integration and provide the necessary and sufficient condition when the two practices are equivalent. When they are not equivalent, the total welfare under tying is higher than that under vertical integration, though both are anticompetitive. This raises the question of whether a harsher treatment of tying than vertical integration in our current antitrust enforcement is economically sound. More interestingly, compared with the no tying/no VI case, both tying and VI can be Pareto improving, despite they do exclude rivals. Both the input monopolist and consumers are strictly better off when no other firms are worse off. Further, we offer the necessary and sufficient condition for Pareto improvement.
https://lawprofessors.typepad.com/antitrustprof_blog/2024/10/tying-vertical-integration-and-pareto-improving-foreclosure.html