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Vertical Integration and Sabotage with a Regulated Bottleneck Monopoly

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Author Info
Alvaro E. Bustos (Catholic University of Chile and Northwestern University)
Alexander Galetovic (Universidad de los Andes)

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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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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=2172&context=bejeap
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Publisher Info
Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 9 (2009)
Issue (Month): 1 ()
Pages:
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Handle: RePEc:bpj:bejeap:v:9:y:2009:i:1:n:35

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Related research
Keywords: bottleneck monopoly; sabotage; vertical integration; free entry; welfare;

Find related papers by JEL classification:
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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This page was last updated on 2009-11-23.

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