Upstream Competition between Vertically Integrated Firms
AbstractWe propose a model of two-tier competition between vertically integrated firms and unintegrated downstream firms. We show that, even when integrated firms compete in prices to offer a homogeneous input, the Bertrand result may not obtain, and the input may be priced above marginal cost in equilibrium, which is detrimental to consumers' surplus and social welfare. We obtain that these partial foreclosure equilibria are more likely to exist when downstream competition is fierce. We then use our model to assess the impact of several regulatory tools in the telecommunications industry.
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Date of creation: 09 Dec 2009
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Vertical foreclosure; vertically-related markets; telecommunications.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-10 (All new papers)
- NEP-ALL-2010-07-24 (All new papers)
- NEP-COM-2010-01-10 (Industrial Competition)
- NEP-COM-2010-07-24 (Industrial Competition)
- NEP-CSE-2010-01-10 (Economics of Strategic Management)
- NEP-IND-2010-07-24 (Industrial Organization)
- NEP-REG-2010-07-24 (Regulation)
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