Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/41417
Authors: 
Normann, Hans-Theo
Year of Publication: 
2010
Series/Report no.: 
DICE discussion paper 05
Abstract: 
The hypothesis that vertically integrated firms have an incentive to foreclose the input market because foreclosure raises its downstream rivals' costs is the subject of much controversy in the theoretical industrial organization literature. A powerful argument against this hypothesis is that, absent commitment, such foreclosure cannot occur in Nash equilibrium. The laboratory data reported in this paper provide experimental evidence in favor of the hypothesis. Markets with a vertically integrated firm are signifiantly less competitive than those where firms are separate. While the experimental results violate the standard equilibrium notion, they are consistent with the quantalresponse generalization of Nash equilibrium.
Subjects: 
experimental economics
foreclosure
quantal response equilibrium
raising rival's costs
vertical integration
JEL: 
C72
C90
D43
ISBN: 
978-3-86304-004-8
Document Type: 
Working Paper

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