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On the Irrelevance of Input Prices for Make-or-Buy Decisions

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Author Info
David E. M. Sappington

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Abstract

This paper demonstrates that input prices need not reflect the costs of an efficient incumbent supplier in order to induce entrants to implement efficient make-or-buy decisions. Because of strategic downstream considerations, entrants may always undertake efficient make-or-buy decisions, regardless of the prices at which they are authorized to buy key inputs from incumbent suppliers.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 95 (2005)
Issue (Month): 5 (December)
Pages: 1631-1638
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Handle: RePEc:aea:aecrev:v:95:y:2005:i:5:p:1631-1638

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Chen, Yongmin, 2001. "On Vertical Mergers and Their Competitive Effects," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 667-85, Winter.
    Other versions:
  2. Mandy, David M, 2002. "TELRIC Pricing with Vintage Capital," Journal of Regulatory Economics, Springer, vol. 22(3), pages 215-49, November. [Downloadable!] (restricted)
  3. Kondaurova, Irina & Weisman, Dennis L., 2003. "Incentives for non-price discrimination," Information Economics and Policy, Elsevier, vol. 15(2), pages 147-171, June. [Downloadable!] (restricted)
  4. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June. [Downloadable!] (restricted)
  5. David L. Kaserman & John Mayo, 2002. "The Supreme Court Weighs in on Local Exchange Competition: The Meta-Message," Review of Network Economics, Concept Economics, vol. 1(2), pages 119-131, September. [Downloadable!]
  6. Jerry A. Hausman, 1997. "Valuing the Effect of Regulation on New Services in Telecommunications," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1997-1), pages 1-54. [Downloadable!]
  7. Gregory L. Rosston & Roger G. Noll, 2002. "The Economics of the Supreme Court's Decision on Forward Looking Costs," Review of Network Economics, Concept Economics, vol. 1(2), pages 81-89, September. [Downloadable!]
  8. Dennis L. Weisman, 2002. "Did The High Court Reach An Economic Low In Verizon v. FCC?," Review of Network Economics, Concept Economics, vol. 1(2), pages 90-105, September. [Downloadable!]
  9. Armstrong, Mark & Doyle, Chris & Vickers, John, 1996. "The Access Pricing Problem: A Synthesis," Journal of Industrial Economics, Blackwell Publishing, vol. 44(2), pages 131-50, June. [Downloadable!] (restricted)
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  10. David M. Mandy & William W. Sharkey, 2003. "Dynamic Pricing and Investment from Static Proxy Models," Review of Network Economics, Concept Economics, vol. 2(4), pages 404-439, December. [Downloadable!]
  11. Beard, T Randolph & Kaserman, David L & Mayo, John W, 2001. "Regulation, Vertical Integration and Sabotage," Journal of Industrial Economics, Blackwell Publishing, vol. 49(3), pages 319-33, September. [Downloadable!] (restricted)
  12. Sibley, David S. & Weisman, Dennis L., 1998. "Raising rivals' costs: The entry of an upstream monopolist into downstream markets," Information Economics and Policy, Elsevier, vol. 10(4), pages 451-470, December. [Downloadable!] (restricted)
  13. Gary Biglaiser & Michael Riordan, 2000. "Dynamics of Price Regulation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 744-767, Winter.
  14. Mark Armstrong, 2001. "Access Pricing, Bypass, and Universal Service," American Economic Review, American Economic Association, vol. 91(2), pages 297-301, May. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Philip G. Gayle & Dennis L. Weisman, 2007. "Efficiency Trade-Offs in the Design of Competition Policy for the Telecommunications Industry," Review of Network Economics, Concept Economics, vol. 6(3), pages 321-341, September. [Downloadable!]
  2. David Mandy, 2007. "When Do Input Prices Matter For Make-Or-Buy Decisions?," Working Papers 0701, Department of Economics, University of Missouri. [Downloadable!]
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