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Pricing to preclude sabotage in regulated industries

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  • Bose, Arup
  • Pal, Debashis
  • Sappington, David E.M.

Abstract

We characterize the optimal access price and retail price for a vertically-integrated incumbent supplier (V) that faces limited competition from a new entrant in the retail sector. The optimal prices provide V with a relatively high wholesale profit margin and a relatively low retail profit margin. Consequently, V has no incentive to raise the costs of its retail rival.

Suggested Citation

  • Bose, Arup & Pal, Debashis & Sappington, David E.M., 2017. "Pricing to preclude sabotage in regulated industries," International Journal of Industrial Organization, Elsevier, vol. 51(C), pages 162-184.
    • Handle: RePEc:eee:indorg:v:51:y:2017:i:c:p:162-184
    DOI: 10.1016/j.ijindorg.2017.01.004
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    References listed on IDEAS

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    1. Alaassar, Ahmad & Mention, Anne-Laure & Aas, Tor Helge, 2020. "Exploring how social interactions influence regulators and innovators: The case of regulatory sandboxes," Technological Forecasting and Social Change, Elsevier, vol. 160(C).

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    More about this item

    Keywords

    Sabotage; Raising rivals’ costs; Wholesale and retail price regulation;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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