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Option Contracts and Vertical Foreclosure
Author(s) -
Ma ChingTo Albert
Publication year - 1997
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.1997.00725.x
Subject(s) - downstream (manufacturing) , monopolization , foreclosure , vertical integration , upstream (networking) , business , bundle , industrial organization , set (abstract data type) , microeconomics , economics , telecommunications , marketing , computer science , finance , materials science , programming language , composite material , monopoly
A model of vertical integration is studied. Upstream firms sell differentiated inputs; downstream firms bundle them to make final products. Downstream products are sold as option contracts, which allow consumers to choose from a set of commodities at predetermined prices. The model is illustrated by examples in telecommunication and health markets. Equilibria of the integration game must result in upstream input foreclosure and downstream monopolization. Consumers may or may not benefit from integration.