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

  • 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)

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.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 76 (2010)
Issue (Month): 3 (January)
Pages: 660-677

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Handle: RePEc:sej:ancoec:v:76:3:y:2010:p:660-677
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