Incentives to Foreclose

Roman Inderst, Tommaso Valletti, Mar 12, 2009

The European Commission’s new non-horizontal merger guidelines envisage a three-step approach to assessing the threat of subsequent foreclosure (European Commission. The first step concerns the merged firm’s ability to distort competition and harm rivals on the upstream or downstream market through full- or partial-foreclosure. The second step deals with the integrated firm’s incentives to foreclose; then followed, as a third and final step, by the assessment of potential competitive harm. In this article, we focus, in particular, on the second screen: the assessment of the incentives of a vertically integrated firm to partially or fully foreclose its rivals. Throughout our analysis, we focus exclusively on input foreclosure.

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