In three related essays, this dissertation examines the issues of vertical market structure, network externalities, and foreclosure. The first essay examines some downstream firms' motivation of forming a technology coalition to block an up-stream technology provider from gaining dominance. Using the notion of coalition proofness, I show that in the presence of an existing upstream technology provider, there exist equilibria in which a subset of downstream firms develop an alternative technology and license it to their downstream rivals. By so doing, the downstream suppliers foreclose the upstream firm from the market. The second essay examines an upstream firm's strategic decision to divest its downstream production division, with the aim of establishing its technology as a de facto standard. Divestiture in this context serves as a commitment of not foreclosing the independent downstream firms in the future and thus facilitates the technology provider's efforts in attracting licensees. In the third essay, I provide new empirical evidence of vertical foreclosure in US cable television market. By using the latest data of 2004, I show that the vertically integrated cable operators are less likely to carry their rivals' program services. In addition, conditional on its rivals' networks are carried, the integrated cable operators are more likely to position them in a way such that they cannot reach the largest possible audience. In summary, in spite of the significant changes taken place in the industry during the past decade, vertical foreclosure remains a persistent phenomenon in the US cable television market.
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