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Vertical Integration and Sabotage with a Regulated Bottleneck Monopoly

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  • Bustos Alvaro E

    ()
    (Catholic University of Chile and Northwestern University)

  • Galetovic Alexander

    ()
    (Universidad de los Andes)

Abstract

We study the vertical integration and sabotage decisions of a regulated bottleneck monopoly that sells "access" to independent firms and may own a subsidiary downstream. We extend the literature in four directions by: (i) endogenizing vertical integration and linking it with the intensity of vertical economies or diseconomies à la Kaserman and Mayo (1991); (ii) systematically studying how vertical economies and diseconomies affect the intensity of sabotage; (iii) showing that the intensity of sabotage is determined by either a standard Lerner condition augmented by the direct cost of sabotage or a relation between the market share of the subsidiary and the elasticity of the derived demand for access; and (iv) systematically examining the welfare effect of vertical integration.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 9 (2009)
Issue (Month): 1 (September)
Pages: 1-52

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Handle: RePEc:bpj:bejeap:v:9:y:2009:i:1:n:35

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Cited by:
  1. David Mandy & David Sappington, 2007. "Incentives for sabotage in vertically related industries," Journal of Regulatory Economics, Springer, vol. 31(3), pages 235-260, June.
  2. Alexandra Lai & Nikil Chande & Sean O'Conner, 2007. "Credit in a Tiered Payments System," DNB Working Papers 126, Netherlands Central Bank, Research Department.
  3. Mattos, César, 2009. "Open access policies, regulated charges and non-price discrimination in telecommunications," Information Economics and Policy, Elsevier, vol. 21(4), pages 253-260, November.
  4. Alexander Galetovic, 2003. "Integración Vertical en el Sector Eléctrico: Una guía para el usuario (Vertical integration in the electricity sector)," Documentos de Trabajo 158, Centro de Economía Aplicada, Universidad de Chile.
  5. Karp, Larry & Perloff, Jeffrey, 2011. "The iPhone Goes Downstream: Mandatory Universal Distribution∗," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7vc007jh, Department of Agricultural & Resource Economics, UC Berkeley.
  6. Bruce Owen, 2011. "Antitrust and Vertical Integration in “New Economy” Industries with Application to Broadband Access," Review of Industrial Organization, Springer, vol. 38(4), pages 363-386, June.
  7. David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
  8. Debashis Pal & David Sappington & Ying Tang, 2012. "Sabotaging cost containment," Journal of Regulatory Economics, Springer, vol. 41(3), pages 293-314, June.
  9. Hervas-Drane, Andres, 2011. "Non-cost-raising discrimination: A rationale for functional separation in broadband open access," IESE Research Papers D/942, IESE Business School.
  10. Toshihiro Matsumura & Noriaki Matsushima, 2012. "Regulated Input Price, Vertical Separation, and Leadership in Free Entry Markets," ISER Discussion Paper 0853, Institute of Social and Economic Research, Osaka University.
  11. David Sappington & Dennis Weisman, 2005. "Self-Sabotage," Journal of Regulatory Economics, Springer, vol. 27(2), pages 155-175, November.

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