Foreclosure in contests
AbstractWe 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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Bibliographic InfoPaper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2008/27.
Length: 20 pages
Date of creation: 10 Feb 2009
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Other versions of this item:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
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