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Foreclosure in contests

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  • Clark, Derek J.

    ()
    (Dept. of Economics and Management, University of Tromsø)

  • Foros, Øystein

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Sand, Jan Yngve

    ()
    (Dept. of Economics and Management, University of Tromsø)

Abstract

We 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 Info

Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2008/27.

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Length: 20 pages
Date of creation: 10 Feb 2009
Date of revision:
Handle: RePEc:hhs:nhhfms:2008_027

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Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
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Fax: +47 55 95 96 50
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Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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Keywords: Foreclosure; contest;

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  1. Clark, Derek J & Riis, Christian, 1996. " A Multi-winner Nested Rent-Seeking Contest," Public Choice, Springer, vol. 87(1-2), pages 177-84, April.
  2. Moldovanu, Benny & Sela, Aner, 1999. "The Optimal Allocation of Prizes in Contests," Sonderforschungsbereich 504 Publications 99-75, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  3. Huck, S. & Konrad, K.A. & Müller, W., 2002. "Merger and collusion in contests," Open Access publications from Tilburg University urn:nbn:nl:ui:12-112517, Tilburg University.
  4. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December.
  5. J. Amegashie, 2006. "A contest success function with a tractable noise parameter," Public Choice, Springer, vol. 126(1), pages 135-144, January.
  6. J. Amegashie & Marco Runkel, 2007. "Sabotaging Potential Rivals," Social Choice and Welfare, Springer, vol. 28(1), pages 143-162, January.
  7. Ordover, Janusz & Shaffer, Greg, 2007. "Wholesale access in multi-firm markets: When is it profitable to supply a competitor?," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1026-1045, October.
  8. Baye, Michael R & Kovenock, Dan & de Vries, Casper G, 1993. "Rigging the Lobbying Process: An Application of the All-Pay Auction," American Economic Review, American Economic Association, vol. 83(1), pages 289-94, March.
  9. Amegashie, J Atsu, 1999. " The Design of Rent-Seeking Competitions: Committees, Preliminary and Final Contests," Public Choice, Springer, vol. 99(1-2), pages 63-76, April.
  10. Katharine E. Rockett, 1990. "Choosing the Competition and Patent Licensing," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 161-171, Spring.
  11. Konrad, Kai A., 2007. "Strategy in contests: an introduction," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, Social Science Research Center Berlin (WZB).
  12. Perez-Castrillo, J David & Verdier, Thierry, 1992. " A General Analysis of Rent-Seeking Games," Public Choice, Springer, vol. 73(3), pages 335-50, April.
  13. Sang-Seung Yi, 1998. "Whom to license patented technology," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(3), pages 189-195.
  14. Clark, Derek J & Riis, Christian, 1998. "Competition over More Than One Prize," American Economic Review, American Economic Association, vol. 88(1), pages 276-89, March.
  15. Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-41, December.
  16. Gradstein, Mark & Konrad, Kai A, 1999. "Orchestrating Rent Seeking Contests," Economic Journal, Royal Economic Society, vol. 109(458), pages 536-45, October.
  17. Long, Ngo Van & Vousden, Neil J, 1987. "Risk-Averse Rent Seeking with Shared Rents," Economic Journal, Royal Economic Society, vol. 97(388), pages 971-85, December.
  18. Yi, Sang-Seung, 1999. "Entry, licensing and research joint ventures," International Journal of Industrial Organization, Elsevier, vol. 17(1), pages 1-24, January.
  19. Nitzan, Shmuel, 1991. "Collective Rent Dissipation," Economic Journal, Royal Economic Society, vol. 101(409), pages 1522-34, November.
  20. Jack Hirshleifer, 1989. "Conflict and rent-seeking success functions: Ratio vs. difference models of relative success," Public Choice, Springer, vol. 63(2), pages 101-112, November.
  21. Amegashie, J Atsu, 2000. " Some Results on Rent-Seeking Contests with Shortlisting," Public Choice, Springer, vol. 105(3-4), pages 245-53, December.
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