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Self-Sabotage

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  • David Sappington

    ()

  • Dennis Weisman

    ()

Abstract

We analyze the incentives of a vertically-integrated producer (VIP) to engage in “self-sabotage”.Self-sabotage occurs when a VIP intentionally increases its upstream costs and/or reduces the quality of its upstream product. We identify conditions under which self-sabotage is profitable for the VIP even though it raises symmetrically the cost of the upstream product to all downstream producers and/or reduces symmetrically the quality of all downstream products. Under specified conditions, self-sabotage can enable a VIP to disadvantage downstream rivals differentially without violating parity requirements. Copyright Springer Science+Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11149-004-5342-8
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Bibliographic Info

Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 27 (2005)
Issue (Month): 2 (November)
Pages: 155-175

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Handle: RePEc:kap:regeco:v:27:y:2005:i:2:p:155-175

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Web page: http://www.springerlink.com/link.asp?id=100298

Related research

Keywords: regulation; parity; sabotage;

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  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. Seade, J, 1985. "Profitable Cost Increases and the Shifting of Taxation : Equilibrium Response of Markets in Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 260, University of Warwick, Department of Economics.
  3. Alvaro Bustos & Alexander Galetovic, 2003. "Vertical Integration and Sabotage in Regulated Industries," Documentos de Trabajo 164, Centro de Economía Aplicada, Universidad de Chile.
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