Marie-Laure Allain, Claire Chambolle, Patrick Rey, Sabrina Teyssier
Publication year: 2017

Recent theoretical developments have shown that, when competition prevails in
two vertically related sectors, partial vertical integration can generate hold-up. This
paper provides experimental evidence in favor of these predictions. In an industry
where two rivals must invest before contracting with one of two competing suppliers,
we analyze how partial vertical integration affects hold-up in two different setups.
In a Commitment setup, suppliers can pre-commit ex ante to appropriating part of
the joint pro t. In a Sabotage setup, suppliers can degrade ex post the quality of
the support they provide to their customers, hence reducing the customer’s pro t.
Although in theory an hold-up effect of the same magnitude should arise in the
two setups, experimental evidence suggests that vertical integration creates hold-
up in these two situations but the effect is signi cantly more pronounced in the
Commitment than in the Sabotage setup. We then explore the sources of this
Keywords: Vertical Integration, Hold-up, Vertical foreclosure, Experimental eco-
JEL Classi cation: L13, L41, L42.