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Vertical integration, technological choice and foreclosure

Published online by Cambridge University Press:  17 August 2016

Eric Avenel*
Affiliation:
EUREQua, Université de Paris I Panthéon-Sorbonne
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Summary

The foreclosure of downstream firms is a major feature in the study of the strategic aspects of vertical integration. The main issue is that, however profitable it may seem for integrated firms to adopt this rising rivals’ costs strategy, foreclosure fails to appear in most models, unless integrated firms are assumed to be able to commit on this strategy. We propose a model based on the idea that foreclosure results from a technological choice. This approach allows us to find equilibrium vertical foreclosure without supposing any commitment capability to integrated firms. Foreclosure results from the adoption a technology that doesn’t rely on the (standard) intermediate good traded on the market, but on a different good, not compatible with the standard technology. The possibility of a (costly) adaptation of a nonstandard good to the standard technology is explicitly taken into account in the model.

Résumé

Résumé

La forclusion des firmes aval est au centre de l’étude des aspects stratégiques de l’intégration verticale. Force est de constater que cette stratégie d’élévation des coûts des concurrents, a priori intéressante pour les firmes intégrées, n’apparaît dans les modèles existants qu’en attribuant aux firmes intégrées la capacité de s’engager sur cette stratégie. Nous proposons un modèle fondé sur l’idée que la forclusion résulte d’un choix terminologique, en l’occurence de l’adoption d’une terminologie qui ne repose pas sur le bien intermédiaire standard échangé sur le marché, mais sur un autre bien intermédiaire, incompatible avec la technologie standard. La forclusion verticale apparaît alors à l’équilibre sans attribuer une capacité d’engagement particulière aux firmes intégrées. Le modèle prend en compte la possiblilite d’une adaptation (coûteuse) d’un bien non-standard à la technologie standard

Type
Research Article
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2000 

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Footnotes

*

I am grateful to D. Encaoua, A. Perrot, P. Rey, J.-R Ponssard, C. Barlet and two anonymous referees for helpful comments on earlier versions of the paper.

**

Maison des Sciences Economiques, 106–112, Boulevard de l’hôpital, 75647 Paris Cedex 13. France, e-mail: [email protected]

References

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