Vertical Integration as a Source of Hold up
While vertical integration is traditionally seen as a solution to the hold up problem, this paper highlights instead that it can generate hold up problems for rivals. We first consider a successive duopoly where competition among suppliers eliminates any risk of hold up; downstreamfirms thus obtain the full return from their investments. We then show that vertical integration creates hold up concerns for the downstream rival, by affecting the integrated supplier's incentives from both ex ante and ex post standpoints. We also provide illustrations in terms of standard industrial organization models and of antitrust cases, and discuss the robustness of the insights.