Vertical Foreclosure, Technological Choice, and Entry on the Intermediate Market |
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Authors: | Eric Avenel Corinne Barlet |
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Affiliation: | EUREQua UniversitéParis 1 75647 Paris Cedex 13, France;EUREQua UniversitéParis 1 75647 Paris Cedex 13, France, |
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Abstract: | This paper analyzes the profitability of vertical integration for an upstream monopoly facing a potential competitor. We show that it depends on the technology used by the firm when it integrates. We distinguish two types of technologies: standard technologies, used by nonintegrated firms, and nonstandard technologies, reserved for integrated firms and implying the complete foreclosure of nonintegrated firms. Vertical integration with the adoption of a nonstandard technology dominates vertical integration with the adoption of a standard technology and is profitable, as long as the degree of competition in the downstream industry is sufficiently low. |
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