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Vertical integration, exclusive dealing, and expost cartelization
Author(s) -
Chen Yongmin,
Riordan Michael H.
Publication year - 2007
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2007.tb00041.x
Subject(s) - downstream (manufacturing) , vertical integration , upstream (networking) , competition (biology) , industrial organization , business , vertical restraints , microeconomics , economics , incentive , marketing , computer science , biology , ecology , computer network
This article uncovers an unnoticed connection between exclusive contracts and vertical organization. A vertically integrated firm can use exclusive dealing to foreclose an equally efficient upstream competitor and to cartelize the downstream industry. Neither vertical integration nor exclusive dealing alone achieves these anticompetitive effects. The cartelization effect of these two practices may be limited when downstream firms are heterogeneous and supply contracts are not contingent on uncertain market conditions. The extent of cartelization also depends on the degree of downstream market concentration and on the degree to which downstream competition is localized.