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Foreclosure in contests

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Author Info

  • Derek Clark

    ()

  • Øystein Foros

    ()

  • Jan Sand

    ()

Abstract

We consider a contest in which one firm is a favourite as it initially has a cost advantage over rivals. Instead of taking the set of rivals as given, we consider the possibility that the favourite transfers the source of its advantage wholly or partially to a subset of rival firms. The result of this may be foreclosure of those firms that do not receive the cost reduction. We present conditions under which this transfer will be expected to occur, and show that the dominant firm will prefer to grant some rivals the maximum cost reduction even if a partial transfer can be made. Furthermore we consider the welfare properties of excluding some rivals. Applications include lobbying, patent races and access to essential infrastructure.

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File URL: http://hdl.handle.net/10.1007/s11127-010-9653-2
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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 148 (2011)
Issue (Month): 1 (July)
Pages: 215-232

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Handle: RePEc:kap:pubcho:v:148:y:2011:i:1:p:215-232

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Web page: http://www.springerlink.com/link.asp?id=100332

Related research

Keywords: Foreclosure; Contest; Licensing; D21; L24;

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References

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  1. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "Rigging The Lobbying Process: An Application Of The All- Pay Auction," Purdue University Economics Working Papers 1002, Purdue University, Department of Economics.
  2. Steffen Huck & Kai A. Konrad & Wieland Müller, 2002. "Merger and Collusion in Contests," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(4), pages 563-, December.
  3. Konrad, Kai A., 2007. "Strategy in contests: an introduction," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, Social Science Research Center Berlin (WZB).
  4. Amegashie, J Atsu, 2000. " Some Results on Rent-Seeking Contests with Shortlisting," Public Choice, Springer, vol. 105(3-4), pages 245-53, December.
  5. J. Amegashie, 2006. "A contest success function with a tractable noise parameter," Public Choice, Springer, vol. 126(1), pages 135-144, January.
  6. Benny Moldovanu & Aner Sela, 2001. "The Optimal Allocation of Prizes in Contests," American Economic Review, American Economic Association, vol. 91(3), pages 542-558, June.
  7. Katharine E. Rockett, 1990. "Choosing the Competition and Patent Licensing," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 161-171, Spring.
  8. Yi, Sang-Seung, 1999. "Entry, licensing and research joint ventures," International Journal of Industrial Organization, Elsevier, vol. 17(1), pages 1-24, January.
  9. Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-41, December.
  10. Clark, Derek J & Riis, Christian, 1996. " A Multi-winner Nested Rent-Seeking Contest," Public Choice, Springer, vol. 87(1-2), pages 177-84, April.
  11. J. Amegashie & Marco Runkel, 2007. "Sabotaging Potential Rivals," Social Choice and Welfare, Springer, vol. 28(1), pages 143-162, January.
  12. Nitzan, Shmuel, 1991. "Collective Rent Dissipation," Economic Journal, Royal Economic Society, vol. 101(409), pages 1522-34, November.
  13. Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
  14. Perez-Castrillo, J David & Verdier, Thierry, 1992. " A General Analysis of Rent-Seeking Games," Public Choice, Springer, vol. 73(3), pages 335-50, April.
  15. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
  16. Gradstein, Mark & Konrad, Kai A, 1999. "Orchestrating Rent Seeking Contests," Economic Journal, Royal Economic Society, vol. 109(458), pages 536-45, October.
  17. Amegashie, J Atsu, 1999. " The Design of Rent-Seeking Competitions: Committees, Preliminary and Final Contests," Public Choice, Springer, vol. 99(1-2), pages 63-76, April.
  18. Ordover, Janusz & Shaffer, Greg, 2007. "Wholesale access in multi-firm markets: When is it profitable to supply a competitor?," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1026-1045, October.
  19. Clark, Derek J & Riis, Christian, 1998. "Competition over More Than One Prize," American Economic Review, American Economic Association, vol. 88(1), pages 276-89, March.
  20. Sang-Seung Yi, 1998. "Whom to license patented technology," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(3), pages 189-195.
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