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Upstream Incentives To Encourage Downstream Competition In A Vertically Separated Industry

Author

Listed:
  • JOEL SANDONÍS

    (Economics Department, University of Alicante, Campus de Sant Vicent del Raspeig, E-03071, Alicante, Spain)

  • JAVIER M. LÓPEZ-CUÑAT

    (Economics Department, University of Alicante, Campus de Sant Vicent del Raspeig, E-03071, Alicante, Spain)

Abstract

We show in this paper that a dominant supplier, under observable two-part tariff contracts and an alternative, less efficient supply of the input, could benefit from more intense competition downstream provided that it has strong enough market power upstream. This implies that the incentives of upstream suppliers to foreclose downstream firms are less important than the previous literature had suggested. In fact, we find that the result also holds under observable linear contracts when we consider free entry in the downstream market.

Suggested Citation

  • Joel Sandonís & Javier M. López-Cuñat, 2018. "Upstream Incentives To Encourage Downstream Competition In A Vertically Separated Industry," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(03), pages 619-627, June.
    • Handle: RePEc:wsi:serxxx:v:63:y:2018:i:03:n:s0217590815500903
    DOI: 10.1142/S0217590815500903
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