Equilibrium Vertical Foreclosure with Investment

Jay Pil Choi & Sang-Seung Yi
One of the most enduring controversies in antitrust concerns the potential foreclosure effects of vertical integration. In a recent paper, Ordover, Saloner and Saloner and Salop (1990) construct a model of vertical integration in which vertical foreclosure emerges as the equilibrium outcome. However, as is well-known, OSS's result breaks down if the vertically integrated firm cannot make the price commitment. In this paper, we reexamine the foreclosure theory of vertical integration by extending OSS's model...
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