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Vertical Mergers in Ecosystems with Consumer Hold‐Up.

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Title: Vertical Mergers in Ecosystems with Consumer Hold‐Up.
Authors: Condorelli, Daniele1 (AUTHOR) d.condorelli@warwick.ac.uk, Padilla, Jorge2 (AUTHOR) jpadilla@compasslexecon.com, Sohn, Youngji1 (AUTHOR) youngji.sohn@warwick.ac.uk
Source: Journal of Industrial Economics. Jun2024, Vol. 72 Issue 2, p909-939. 31p.
Subjects: Mergers & acquisitions, Consumers, Ecosystems, Contracts, Market design & structure (Economics)
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. [ABSTRACT FROM AUTHOR]
Copyright of Journal of Industrial Economics is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)
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  Data: Vertical Mergers in Ecosystems with Consumer Hold‐Up.
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  Data: <searchLink fieldCode="JN" term="%22Journal+of+Industrial+Economics%22">Journal of Industrial Economics</searchLink>. Jun2024, Vol. 72 Issue 2, p909-939. 31p.
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  Data: <searchLink fieldCode="DE" term="%22Mergers+%26+acquisitions%22">Mergers & acquisitions</searchLink><br /><searchLink fieldCode="DE" term="%22Consumers%22">Consumers</searchLink><br /><searchLink fieldCode="DE" term="%22Ecosystems%22">Ecosystems</searchLink><br /><searchLink fieldCode="DE" term="%22Contracts%22">Contracts</searchLink><br /><searchLink fieldCode="DE" term="%22Market+design+%26+structure+%28Economics%29%22">Market design & structure (Economics)</searchLink>
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  Data: 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. [ABSTRACT FROM AUTHOR]
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  Data: <i>Copyright of Journal of Industrial Economics is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract.</i> (Copyright applies to all Abstracts.)
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        Value: 10.1111/joie.12377
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        Text: English
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        PageCount: 31
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        Type: general
      – SubjectFull: Consumers
        Type: general
      – SubjectFull: Ecosystems
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      – SubjectFull: Contracts
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      – SubjectFull: Market design & structure (Economics)
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              M: 06
              Text: Jun2024
              Type: published
              Y: 2024
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