Foreclosure

Foreclosure:The "leverage" concept argued that there is a single source of monopoly prot, and that a bottleneck monopolist can earn the entire monopoly
prot without extending its market power to related segments (vertical
integration cannot increase protability of merging rms).

For example, a bottleneck holder faces a commitment problem similar to that of
a durable-good monopolist (see Coase's durable good analysis): once
it has contracted with a downstream rm for access to its facility, it
is tempted to oer access to other rms as well (even if their competi-
tion to the other rm will reduce monopolist's prots).

Nevertheless,the positioning (downstream or upstream) of the rm is not aleatory
and it has some important consequences on the monopolist's power. A
comparison between exclusive contracts and commitment problem lead
us to two major problems:

(a) upstream bottleneck's prot is smaller, the larger the number of
downstream rms, and
(b) for a given number of downstream rms, the upstream prot is
smaller, the more substitutable the downstream units.
The study of this problems lead the authors to derivate three major
policy implications:

(a) it is important whether the more competitive of two complemen-
tary sectors lies upstream or downstream (prices are lower if the
bottleneck owner lies upstream),

(b) non-discrimination laws may have a perverse eect of restoring the
monopoly power (when an upstream bottleneck practices foreclo-
sure by discrimination among competitors, oering to all com-
petitors the same commercial conditions forces bottleneck to sell
further units at the same high price, that helps it to commit),