Vertical Foreclosure in Experimental Markets

Posted: 8 Jan 2002

See all articles by Stephen Martin

Stephen Martin

Purdue University - Department of Economics

Hans-Theo Normann

Heinrich Heine University Dusseldorf - Department of Economics; Max Planck Institute for Research on Collective Goods

Christopher M. Snyder

Dartmouth College - Department of Economics

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Abstract

We report the results of experiments designed to test recent theories of vertical foreclosure. Consistent with the theory, vertical integration improves the upstream firm's ability to commit to restricting output to the monopoly level, as does the use of public contracts. Public contracts are not a perfect substitute for vertical integration, however: integration allows more surplus to be extracted from the unintegrated downstream firm, a bargaining effect that has been underemphasized in the recent foreclosure literature. Motivated by some observations that are difficult to reconcile with existing theory, we extend the theory to allow downstream firms to have heterogeneous (rather than purely passive or symmetric) out-of-equilibrium beliefs.

JEL Classification: C92, L12, L22, L42

Suggested Citation

Martin, Stephen and Normann, Hans-Theo and Snyder, Christopher M., Vertical Foreclosure in Experimental Markets. Available at SSRN: https://ssrn.com/abstract=279776

Stephen Martin

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

Hans-Theo Normann

Heinrich Heine University Dusseldorf - Department of Economics ( email )

Duesseldorf
Germany

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

Christopher M. Snyder (Contact Author)

Dartmouth College - Department of Economics ( email )

301 Rockefeller Hall
Hanover, NH 03755
United States
(603) 646-0642 (Phone)
(603) 646-2122 (Fax)

HOME PAGE: http://www.dartmouth.edu/~csnyder/

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