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Strategic Alliances, Shared Facilities, and Entry Deterrence

  • Zhinqi Chen
  • Thomas W. Ross

We explore some possible anticompetitive effects of one particular type of strategic alliance--common in the airline industry, among others--that involves the sharing of production capacity. An offer to share an existing facility can allow an incumbent to persuade a potential entrant not to build its own facility. We establish conditions under which an agreement to share will be anticompetitive in the sense that, absent the agreement, a more competitive outcome (i.e., entry with new capacity) would have obtained. Such alliances can reduce welfare even if the incumbent and entrant will not be direct competitors.

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Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 31 (2000)
Issue (Month): 2 (Summer)
Pages: 326-344

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Handle: RePEc:rje:randje:v:31:y:2000:i:summer:p:326-344
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