Product Differentiation when Competing with the Suppliers of Bottleneck Inputs
AbstractIn this article, we analyze the product differentiation decision of a downstream entrant that purchases access to a bottleneck input from one of two vertically integrated incumbents, who will compete with him in the downstream market. We develop a three-stage model, where first an entrant chooses his product, then the entrant negotiates the access price with two incumbents, and finally the firms compete on retail prices. Contrary to what one might expect, both the entrant and the access provider prefer that the entrant chooses a product that is a closer substitute of the product of the access provider than of the product of the other incumbent. This occurs because the access provider interacts with the entrant both in the retail market and the wholesale market. We also consider the cases where both parties, rather than only the incumbents, make the access price offers, where the bargaining stage precedes the location stage, and where there is open access regulation.
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Bibliographic InfoPaper provided by Portuguese Competition Authority in its series Working Papers with number 25.
Length: 37 pages
Date of creation: Jul 2007
Date of revision:
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Horizontal differentiation; Location; Access price;
Other versions of this item:
- Brito, Duarte & Pereira, Pedro, 2009. "Product differentiation when competing with the suppliers of bottleneck inputs," Regional Science and Urban Economics, Elsevier, vol. 39(1), pages 43-53, January.
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-08 (All new papers)
- NEP-COM-2007-08-08 (Industrial Competition)
- NEP-MIC-2007-08-08 (Microeconomics)
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