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Access to Bottleneck Inputs under Oligopoly: a Prisoners Dilemma?

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Author Info
Duarte Brito () (Universidade Nova de Lisboa)
Pedro Pereira () (Autoridade da Concorrência)

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Abstract

In this article, we analyze the incentives of vertically integrated oligopolists to concede access to their bottleneck inputs to an entrant in the downstream retail market. We develop a two-stage model, where in the first stage a downstream entrant negotiates an access price with three vertically integrated incumbents, and in stage 2 firms compete on Salop's circle. The incumbents may be asymmetrically located on the circle, to reflect differences in consumer shares. For some levels of asymmetry, the incumbents face a prisoners dilemma with respect to conceding access to their bottleneck inputs. Entry by a downstream firm may lead to lower retail prices. However, entry may also lead to higher retail prices for the access provider and for the entrant.

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File URL: http://www.concorrencia.pt/download/WP16_Bottleneck_Feb_2008.pdf
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File Function: First version, 2006
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Publisher Info
Paper provided by Portuguese Competition Authority in its series Working Papers with number 16.

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Length: 38 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:pca:wpaper:16

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Related research
Keywords: Bottleneck Input; Vertical Integration; Oligopoly; Entry;

Other versions of this item:

Find related papers by JEL classification:
L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

This paper has been announced in the following NEP Reports:

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.:
  1. Yongmin Chen & Michael H. Riordan, 2007. "Price and Variety in the Spokes Model," Economic Journal, Royal Economic Society, vol. 117(522), pages 897-921, 07. [Downloadable!] (restricted)
    Other versions:
  2. Economides, Nicholas, 1998. "The incentive for non-price discrimination by an input monopolist," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 271-284, May. [Downloadable!] (restricted)
  3. Duarte Brito & Pedro Pereira, 2007. "Product Differentiation when Competing with the Suppliers of Bottleneck Inputs," Working Papers 25, Portuguese Competition Authority. [Downloadable!]
    Other versions:
  4. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Armstrong, M. & Vickers, J., 1995. "The Access Pricing Problem," Discussion Paper Series In Economics And Econometrics 9506, Economics Division, School of Social Sciences, University of Southampton.
  6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring. [Downloadable!] (restricted)
  7. von Ungern-Sternberg, Thomas, 1991. "Monopolistic Competition on the Pyramid," Journal of Industrial Economics, Blackwell Publishing, vol. 39(4), pages 355-68, June. [Downloadable!] (restricted)
  8. Jean-Jacques Laffont & Jean Tirole, 1994. "Access Pricing and Competition," Working papers 94-31, Massachusetts Institute of Technology (MIT), Department of Economics.
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  9. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March. [Downloadable!] (restricted)
  10. Sibley, David S. & Weisman, Dennis L., 1998. "Raising rivals' costs: The entry of an upstream monopolist into downstream markets," Information Economics and Policy, Elsevier, vol. 10(4), pages 451-470, December. [Downloadable!] (restricted)
  11. Lewis, Tracy R. & Sappington, David E. M., 1999. "Access pricing with unregulated downstream competition," Information Economics and Policy, Elsevier, vol. 11(1), pages 73-100, March. [Downloadable!] (restricted)
  12. Biglaiser, Gary & DeGraba, Patrick, 2001. "Downstream Integration by a Bottleneck Input Supplier Whose Regulated Wholesale Prices Are Above Costs," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 302-15, Summer.
  13. Barros, Pedro P & Cabral, Luis, 2000. "Competing for Foreign Direct Investment," Review of International Economics, Blackwell Publishing, vol. 8(2), pages 360-71, May. [Downloadable!] (restricted)
  14. Vickers, John, 1995. "Competition and Regulation in Vertically Related Markets," Review of Economic Studies, Blackwell Publishing, vol. 62(1), pages 1-17, January. [Downloadable!] (restricted)
  15. Armstrong, Mark & Doyle, Chris & Vickers, John, 1996. "The Access Pricing Problem: A Synthesis," Journal of Industrial Economics, Blackwell Publishing, vol. 44(2), pages 131-50, June. [Downloadable!] (restricted)
    Other versions:
  16. Binmore, Ken G & Herrero, M J, 1988. "Matching and Bargaining in Dynamic Markets," Review of Economic Studies, Blackwell Publishing, vol. 55(1), pages 17-31, January. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Michiel Bijlsma & Viktória Kocsis & Nelli Valmari, 2008. "Competition and access price regulation in the broadband market," CPB Discussion Papers 106, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  2. Duarte Brito & Pedro Pereira, 2007. "Product Differentiation when Competing with the Suppliers of Bottleneck Inputs," Working Papers 25, Portuguese Competition Authority. [Downloadable!]
    Other versions:
  3. Michiel J. Bijlsma & Gijsbert T.J. Zwart, 2009. "Competition for Access: Spectrum Rights and Downstream Access in Wireless Telecommunications," CPB Discussion Papers 123, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  4. Michiel Bijlsma & Viktoria Kocsis & Victoria Shestalova & Gijsbert Zwart, 2008. "Vertical foreclosure, a policy framework," CPB Documents 157, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  5. Bourreau, Marc & Hombert, Johan & Pouyet, Jérôme & Schutz, Nicolas, 2007. "Wholesale Markets in Telecommunications," CEPR Discussion Papers 6224, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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