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Vertical mergers in ecosystems with consumer hold-up
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Condorelli, Daniele, Padilla, Jorge and Sohn, Youngji (2024) Vertical mergers in ecosystems with consumer hold-up. Journal of Industrial Economics . doi:10.1111/joie.12377 ISSN 0022-1821. (In Press)
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Official URL: https://doi.org/10.1111/joie.12377
Abstract
An ecosystem comprises all downstream products that employ a certain upstream input. In many cases, final consumers make irreversible investments to join an ecosystem before downstream prices are set. By committing to buy products that use the specific ecosystem input, they are at risk of being held-up. Unable to observe future prices, consumers base their decisions on what they observe about the market structure within each ecosystem, including vertical contracts signed by the upstream firms. By entering into vertical agreements with multiple competing downstream firms, thus creating a credible expectation of lower prices, an upstream firm is able to mitigate consumers' hold-up problem and, as a result, increase ecosystem demand. Our main observation is that, in contrast to conventional wisdom, an upstream monopolist merging with one of its downstream affiliates will find it profitable to continue to serve downstream competitors, even when products sold downstream are homogeneous.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||||||
Divisions: | Faculty of Social Sciences > Economics | ||||||||
Library of Congress Subject Headings (LCSH): | Consolidation and merger of corporations -- Econometric models, Ecosystem management, Competition -- Econometric models, Consumer behavior | ||||||||
Journal or Publication Title: | Journal of Industrial Economics | ||||||||
Publisher: | Wiley-Blackwell Publishing Ltd. | ||||||||
ISSN: | 0022-1821 | ||||||||
Official Date: | 2024 | ||||||||
Dates: |
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DOI: | 10.1111/joie.12377 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | In Press | ||||||||
Re-use Statement: | This is the peer reviewed version of the following article: Condorelli, D., Padilla, J. and Sohn, Y. (2024), Vertical Mergers in Ecosystems with Consumer Hold-Up. J Ind Econ. in press, which has been published in final form at https://doi.org/10.1111/joie.12377. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited | ||||||||
Access rights to Published version: | Open Access (Creative Commons) | ||||||||
Date of first compliant deposit: | 8 November 2023 | ||||||||
Date of first compliant Open Access: | 25 January 2024 | ||||||||
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