This paper constructs a simple repeated game model to analyze how industry outcomes alter if a regulated input monopolist is allowed to integrate into the downstream retail market. Integration helps overcome double marginalization-a feature well known in the existing literature. Unlike existing static models, however, integration also makes tacit collusion more difficult in a repeated game framework. If the regulated input price exceeds marginal cost, an integrated monopolist has an incentive to increase retail sales as this raises upstream profits. It will be less willing to engage in any tacitly collusive conduct in the downstream market and it has a greater incentive to cheat on any collusive arrangement. We show that these effects may dominate input price regulation. A social planner may prefer the upstream monopoly to participate in the downstream market, even if integration leads to a higher regulated input price. The anti-competitive effects of the higher input price are more than offset by the pro-competitive effects of integration.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Length: 31 pages Date of creation: 2000 Date of revision: Handle: RePEc:mlb:wpaper:767
Contact details of provider: Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia Phone: +61 3 8344 5289 Fax: +61 3 8344 6899 Email: Web page: http://www.economics.unimelb.edu.au More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Colemann Leong).
Find related papers by JEL classification: L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: