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Access to Bottleneck Inputs under Oligopoly: A Prisoners' Dilemma?

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  • Duarte Brito
  • Pedro Pereira

Abstract

We analyze the incentives of vertically integrated oligopolists to concede access to their bottleneck inputs to an entrant in the downstream market. First, two vertically integrated incumbents make access price offers to an entrant that chooses which one to accept, if any. Second, firms compete on Salop's circle. The firms may be asymmetrically located on the circle, to reflect differences in consumer shares. For some levels of asymmetry, the incumbents face a prisoners' dilemma with respect to conceding access to their bottleneck inputs. Entry by a downstream firm may lead to lower retail prices. However, entry may also lead to higher retail prices for the access provider and for the entrant. We also consider the cases where there are several incumbents and where the entrant makes the access price offers.

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  • Duarte Brito & Pedro Pereira, 2010. "Access to Bottleneck Inputs under Oligopoly: A Prisoners' Dilemma?," Southern Economic Journal, John Wiley & Sons, vol. 76(3), pages 660-677, January.
    • Handle: RePEc:wly:soecon:v:76:y:2010:i:3:p:660-677
    DOI: 10.4284/sej.2010.76.3.660
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    JEL classification:

    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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