Market foreclosure

Market foreclosure or vertical foreclosure is the production limitation put on a producing organization if either it is denied access to a supplier (an upstream foreclosure) or it is denied access to a downstream buyer.[1] A supplier or intermediary in a supply chain could acquire this form of market power against competitors through mergers and acquisitions with suppliers and customers, that is, vertical integration, along a value chain).

Examples

An examination of media markets showed that integrated operators are likely to exclude rival program services, and attempt to increase the barrier to entry in the market. Thus, effectively blocking some program services from the distribution networks of vertically integrated cable system operators.[2]

In gasoline production, a vertically-integrated refinery can reduce competition through practices that constrain supply to retailers outside its network of related firms. Researchers have estimated that US wholesale gasoline prices have been raised by 0.2 to 0.6 cents per gallon due to the market power wielded by vertically integrated players in the industry.[3]

Vertical integration without market foreclosure

Vertical integration does not always foreclose markets. Researchers reviewing plant and market data in the US cement and concrete industries over a 34-year span found that vertical integration led to lower prices and higher quantities for consumers, presumably because of production efficiencies from integration.[4] This is contrary to what one would expect in a market experiencing foreclosure by players with market power. Similarly, a review of exclusive dealing practices in the Chicago beer market did not find foreclosure effects.[5]

See also

References
  1. Stefanadis, C. 1997.Downstream Vertical Foreclosure and Upstream Innovation. Journal of Industrial Economics.
  2. Tasneem Chipty. Vertical Integration, Market Foreclosure, and Consumer Welfare in the Cable Television Industry. American Economic Review, June 2001
  3. Z. Aydemir. Estimating Vertical Foreclosure in U.S. Gasoline Supply
  4. Ali Hortaçsu; Chad Syverson. Cementing Relationships: Vertical Integration, Foreclosure, Productivity, and Prices. Journal of Political Economy 2007
  5. John Asker. Diagnosing Foreclosure due to Exclusive Dealing
This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.