IDEAS home Printed from https://ideas.repec.org/a/aea/aejmic/v5y2013i1p175-93.html

The Welfare Effects of Use-or-Lose Provisions in Markets with Dominant Firms

Author

Listed:
  • Ian Gale
  • Daniel P. O'Brien

Abstract

A use-or-lose provision requires that firms employ a certain minimum fraction of their productive capacity. Variants have been used by regulators in the airline and wireless communications industries, among others. A typical stated objective is to limit capacity hoarding, thereby increasing aggregate output and welfare. When the dominant firm is more efficient than fringe firms, we find that imposing a use-or- lose provision induces the dominant firm to acquire capacity from the fringe, which causes aggregate output to fall. When the dominant firm is less efficient than the fringe, aggregate output rises. In both cases, total surplus may rise or fall. (JEL D43, K21, L13, L93)

Suggested Citation

  • Ian Gale & Daniel P. O'Brien, 2013. "The Welfare Effects of Use-or-Lose Provisions in Markets with Dominant Firms," American Economic Journal: Microeconomics, American Economic Association, vol. 5(1), pages 175-193, February.
    • Handle: RePEc:aea:aejmic:v:5:y:2013:i:1:p:175-93
    Note: DOI: 10.1257/mic.5.1.175
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.5.1.175
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. repec:bla:jindec:v:49:y:2001:i:2:p:137-60 is not listed on IDEAS
    2. Krishna, Kala, 1993. "Auctions with Endogenous Valuations: The Persistence of Monopoly Revisited," American Economic Review, American Economic Association, vol. 83(1), pages 147-160, March.
    3. Riordan, Michael H, 1998. "Anticompetitive Vertical Integration by a Dominant Firm," American Economic Review, American Economic Association, vol. 88(5), pages 1232-1248, December.
    4. Gale, Ian, 1994. "Price competition in noncooperative joint ventures," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 53-69, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Valdes, Victor & Gillen, David, 2018. "The consumer welfare effects of slot concentration and reallocation: A study of Mexico City International Airport," Transportation Research Part A: Policy and Practice, Elsevier, vol. 114(PA), pages 256-269.
    2. Ricardo Flores‐Fillol & Alberto Iozzi & Tommaso Valletti, 2018. "Platform pricing and consumer foresight: The case of airports," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(4), pages 705-725, October.
    3. James Reitzes & Brendan McVeigh & Nicholas Powers & Samuel Moy, 2015. "Competitive Effects of Exchanges or Sales of Airport Landing Slots," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 46(2), pages 95-125, March.
    4. Antelo, Manel & Bru, Lluís, 2022. "Optimal capacity allocation in a vertical industry," MPRA Paper 113984, University Library of Munich, Germany.
    5. Zenger, Hans, 2013. "Competition and collusion with fixed output," Economics Letters, Elsevier, vol. 120(2), pages 259-261.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Péter Eső & Volker Nocke & Lucy White, 2010. "Competition for scarce resources," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 524-548, September.
    2. Juan‐Pablo Montero & Juan Ignacio Guzman, 2010. "Output‐Expanding Collusion In The Presence Of A Competitive Fringe," Journal of Industrial Economics, Wiley Blackwell, vol. 58(1), pages 106-126, March.
    3. Benoit Voudon, 2019. "Vertical Integration in the presence of a Cost-Reducing Technology," Trinity Economics Papers tep0919, Trinity College Dublin, Department of Economics.
    4. James Lake & Maia Linask, 2015. "Costly distribution and the non-equivalence of tariffs and quotas," Public Choice, Springer, vol. 165(3), pages 211-238, December.
    5. Shai Bernstein & Eyal Winter, 2012. "Contracting with Heterogeneous Externalities," American Economic Journal: Microeconomics, American Economic Association, vol. 4(2), pages 50-76, May.
    6. Martin Gaynor & Deborah Haas-Wilson, 1999. "Change, Consolidation, and Competition in Health Care Markets," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 141-164, Winter.
    7. Milliou, Chrysovalantou, 2020. "Vertical integration without intrafirm trade," Economics Letters, Elsevier, vol. 192(C).
    8. P. Dogan, "undated". "Vertical Networks, Integration, and Connectivity," Working Paper 33644, Harvard University OpenScholar.
    9. Eerola, Essi & Maattanen, Niku, 2004. "Strategic alliances, joint investments, and market structure," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 241-251, February.
    10. Yongmin Chen & Ruqu Wang, 2006. "Market Design with Correlated Valuations," Economica, London School of Economics and Political Science, vol. 73(292), pages 659-672, November.
    11. L. Lambertini, 2013. "Coordinating Static and Dynamic Supply Chains with Advertising through Two-Part Tariffs," Working Papers wp874, Dipartimento Scienze Economiche, Universita' di Bologna.
    12. Julio Peña Torres & Gabriel Fernández Aguirre, 2008. "Disuasión de Entrada Vía Subastas: Free Riding o Colusión?," ILADES-UAH Working Papers inv215, Universidad Alberto Hurtado/School of Economics and Business.
    13. Norback, Pehr-Johan & Persson, Lars, 2006. "Endogenous asset ownership structures in deregulated markets," European Economic Review, Elsevier, vol. 50(7), pages 1729-1752, October.
    14. Matsushima, Noriaki & Mizuno, Tomomichi, 2013. "Vertical separation as a defense against strong suppliers," European Journal of Operational Research, Elsevier, vol. 228(1), pages 208-216.
    15. Thomas Rønde, 2001. "Trade Secrets and Information Sharing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 391-417, September.
    16. Spindler, Christian & Woll, Oliver & Schober, Dominik, 2018. "Sharing is not caring: Backward integration of consumers," ZEW Discussion Papers 18-006, ZEW - Leibniz Centre for European Economic Research.
    17. Peter Cramton & Andrzej Skrzypacz & Robert Wilson, 2007. "Revenues in the 700 MHz Spectrum Auction," Papers of Peter Cramton 07rev700, University of Maryland, Department of Economics - Peter Cramton, revised 2007.
    18. Hamid Beladi & Arijit Mukherjee, 2022. "R&D competition and the persistence of technology leadership," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(3), pages 272-284, September.
    19. Alger, Dan, 1998. "Open Ownership - Not Common Carriage," Working Paper Series 3932, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    20. Stefan Buehler & Armin Schmutzler, 2003. "Downstream Investment in Oligopoly," SOI - Working Papers 0310, Socioeconomic Institute - University of Zurich.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmic:v:5:y:2013:i:1:p:175-93. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.