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Review of Network Economics Vol.6, Issue 3 – September 2007 Vertical Foreclosure in Video Programming Markets: Implications for Cable Operators HAL J. SINGER * Criterion Economics, L.L.C. J. GREGORY SIDAK Georgetown University Law Center Abstract This paper argues that a cable operator with sufficient market power in the downstream multi- channel video programming distribution (MVPD) market can deny access to unaffiliated programmers, resulting in an upstream programming rival’s exit or impaired dynamic efficiency

The Promise and Pitfalls of Restructuring Network Industries Stefan Buehler University of Zurich and University of St. Gallen Abstract. This paper examines the competitive effects of reorganizing a network industry’s vertical structure. In this industry, an upstream monopolist operates a network used as an input to produce horizontally differentiated final products that are imperfect substitutes. Three potential pitfalls of restructuring integrated network industries are analyzed: (i) double marginalization, (ii) underinvestment and (iii) vertical foreclosure

from network neutrality, in particular termination fees, second-degree price discrimination, and vertical foreclosure. KEYWORDS: net neutrality, two-sided markets, network management, access-tiering, foreclosure Author Notes: I am grateful to the editor, Julian Wright, an anonymous referee, as well as Andrea Amelio, Eric van Damme, Jens Prüfer and Jasper Sluijs for helpful comments and suggestions. All errors are my own. 1 Introduction Roughly speaking, network neutrality refers to the principle that all data packets on an information network are treated equally

firms integrate and others remain separated, even if firms are symmetric initially; (ii) Efficient firms are more likely to integrate vertically. As a result, integrated firms also tend to have a large market share. The driving force behind these findings are demand/mark-up complementarities in the product market. We also identify countervailing forces resulting from strong vertical foreclosure, upstream sales and endogenous acquisition costs. KEYWORDS: successive oligopolies, vertical integration, efficiency, foreclosure ∗Address: University of Zurich, Socioeconomic

relationship to the literature on monopoly regulation and the literature on vertical (dis)integration, access pricing, and vertical foreclosure. This relationship is discussed below (see the discussion following Proposition 1 in Section 3 ). The main point of the paper is illustrated, in simple terms, via an example, in Section 2 . The general case is presented in Section 3 . 2 An Example Assuming a cost function $C(q)=F+\alpha q^2$ C ( q ) = F + α q 2 , where q denotes output, F  > 0 represents the fixed cost of creating and maintaining the distribution network, and

.2 Bundling: the CFI’s assessment 2.3 Bundling: conclusion 3. Vertical foreclosure 3.1 The Commission’s vertical foreclosure theory (engine starters) 3.2 The CFI’s findings on vertical foreclosure 4. Conclusion: proving vertical and conglomerate effects IV. Concluding thoughts 1. The assessment of dominance 2. The assessment of vertical and conglomerate effects 3. Economic evidence I. Introduction Deep in December 2005, the European Court of First Instance (CFI) published its judgement on General Electric’s appeal against the European Commission’s prohibition decision in

. The ISP– conduit relationship has received a tremendous amount of policy attention through unbundling or open access policies that seek to ensure non-discriminatory access of ISPs to conduits. Second, the ISP offers content of one type or another to its customers. We believe this ISP–content relationship has received much too little attention, and that in fact it is key to openness on the Internet. In this context, “open” generally refers to a lack of vertical foreclosure, but since there are two vertical relationships, there are two types of openness. “Open

complication in implementing open access policies; openness typically refers to a lack of vertical foreclosure, but since there are two vertical relationships, there are two types of openness: open access refers to the ability of any ISP to access the conduit, while open content describes an ISP that is neutral with respect to content. Open access regulation typically requires vertically integrated firms to offer access to their conduit. However, no such rules apply to the ISP-content relationship and, thus, Hogendorn argues that open access does not play the same

rival’s cost by (surprisingly) choosing to purchase inputs from independent upstream firms at a price higher than the marginal cost of its own upstream division. Ordover, Saloner, and Salop (1990) find that vertical foreclosure by the VIP may raise the downstream prices and encourage the downstream rival to purchase from the remaining suppliers or bid to integrate with an upstream firm. Riordan (2008) demonstrates that in the presence of two-part tariffs, refusals to deal with independent downstream firms could result in a more concentrated downstream market that

case, the European Commission stressed the importance of vertical integration and vertical foreclosure for on-line entertainment and media industries. As has been emphasized by a consultant’s speech to the Competition DG: “The Commission found that the new entity resulting from the merger would have been able to play a gate-keeper role and to dictate the technical standards for on-line music delivery, 7 In this context, regulation could foster effective competition between different kinds of information networks