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Access to Bottleneck Inputs under Oligopoly: A Prisoners’ Dilemma?

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  • Duarte Brito

    () (DCSA, Faculdade de Cieˆncias e Tecnologia da Universidade Nova de Lisboa, CEFAGE-UE (Center for Advanced Studies in Management and Economics), Quinta da Torre, 2829-516 Caparica, Portugal)

  • Pedro Pereira

    () (LECG, 675 3rd Avenue, 26th floor, and IST (Technical Superior Institute), New York, NY 10017, USA)

Abstract

We analyze the incentives of vertically integrated oligopolists to concede access to their bottleneck inputs to an entrant in the downstream market. First, two vertically integrated incumbents make access price offers to an entrant that chooses which one to accept, if any. Second, firms compete on Salop’s circle. The firms 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. We also consider the cases where there are several incumbents and where the entrant makes the access price offers.

Suggested Citation

  • Duarte Brito & Pedro Pereira, 2010. "Access to Bottleneck Inputs under Oligopoly: A Prisoners’ Dilemma?," Southern Economic Journal, Southern Economic Association, vol. 76(3), pages 660-677, January.
  • Handle: RePEc:sej:ancoec:v:76:3:y:2010:p:660-677
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    File URL: http://dx.doi.org/10.4284/sej.2010.76.3.660
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    Cited by:

    1. Bourreau, Marc & Cambini, Carlo & Hoernig, Steffen, 2015. "Geographic access markets and investments," Information Economics and Policy, Elsevier, vol. 31(C), pages 13-21.
    2. Brito, Duarte & Pereira, Pedro & Vareda, João, 2012. "Incentives to invest and to give access to non-regulated new technologies," Information Economics and Policy, Elsevier, vol. 24(3), pages 197-211.
    3. Marc Bourreau & Johan Hombert & Jerome Pouyet & Nicolas Schutz, 2011. "Upstream Competition between Vertically Integrated Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 59(4), pages 677-713, December.
    4. Matsushima, Noriaki & Mizuno, Keizo, 2014. "Competition for access provision: Infrastructure upgrades with spillovers," 25th European Regional ITS Conference, Brussels 2014 101419, International Telecommunications Society (ITS).
    5. Dominguez, Fernando, 2010. "Water scarcity: Can virtual water operators help?," Utilities Policy, Elsevier, vol. 18(3), pages 129-134, September.
    6. Dogan, Pinar & Bourreau, Marc & Manant, Matthieu, 2010. "A Critical Review of the “Ladder of Investment†Approach," Scholarly Articles 4777447, Harvard Kennedy School of Government.
    7. Steffen Hoernig, 2015. "Three Equivalent Salop Models and their Normative Representative Consumer," FEUNL Working Paper Series wp593, Universidade Nova de Lisboa, Faculdade de Economia.

    More about this item

    JEL classification:

    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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