We study horizontal product differentiation as a strategic decision of downstream firms facing a threat of vertical integration and market foreclosure by an upstream monopolist. We model product differentiation either as pure market segmentation or as generating positive value to consumers....

In a recent paper, Alipranti et al. (2014, Price vs. quantity competition in a vertically related market, Economics Letters, 124: 122-126) show that in a vertically related market Cournot competition yields higher social welfare compared to Bertrand competition if the upstream firm subsidises...