Working paper

Vertical Integration as a Source of Hold-up: an Experiment

Marie-Laure Allain, Claire Chambolle, Patrick Rey, and Sabrina Teyssier

Abstract

In a vertical chain in which two rivals invest before contracting with one of two competing suppliers, partial vertical integration may create hold-up problems for the rival. We develop an experiment to test this theoretical prediction in two setups, in which suppliers can either pre-commit ex ante to appropriating part of the joint profit, or degrade ex post the support they provide to their customer. Our experimental results confirm that vertical integration creates hold-up problems in both setups. However, we observe more departures from theory in the second one. Bounded rationality and social preferences provide a rationale for these departures.

Keywords

Vertical Integration; Hold-up; Experimental Economics; Bounded Rationality; Social Preferences.;

JEL codes

  • C91: Laboratory, Individual Behavior
  • D90: General
  • L13: Oligopoly and Other Imperfect Markets
  • L41: Monopolization • Horizontal Anticompetitive Practices

Reference

Marie-Laure Allain, Claire Chambolle, Patrick Rey, and Sabrina Teyssier, Vertical Integration as a Source of Hold-up: an Experiment, TSE Working Paper, n. 20-1062, January 2020.

See also

Published in

TSE Working Paper, n. 20-1062, January 2020