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Upstream market foreclosure

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  • Jean j., GABSZEWICZ

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE))

  • Skerdilajda, ZANAJ

Abstract

This paper investigates how an incumbent monopolistic can weaken potential rivals or deter entry in the output market by manipulating the access of these rivals in the input market. We analyze two polar cases. In the first one, the input market is assumed to be competitive with the input being supplied inelastically. We show that the situation opens the door to entry deterrence. Then, we assume that the input is supplied by a single seller who chooses the input price. In this case we show that entry deterrence can be reached only through merger with the seller of the input.

Suggested Citation

  • Jean j., GABSZEWICZ & Skerdilajda, ZANAJ, 2006. "Upstream market foreclosure," Discussion Papers (ECON - Département des Sciences Economiques) 2006024, Université catholique de Louvain, Département des Sciences Economiques.
  • Handle: RePEc:ctl:louvec:2006024
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2006-24.pdf
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    References listed on IDEAS

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    1. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-271, May.
    2. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    3. Salop, Steven C & Scheffman, David T, 1987. "Cost-Raising Strategies," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 19-34, September.
    4. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
    5. Granitz, Elizabeth & Klein, Benjamin, 1996. "Monopolization by "Raising Rivals' Costs": The Standard Oil Case," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 1-47, April.
    6. Martin, Stephen & Normann, Hans-Theo & Snyder, Christopher M, 2001. "Vertical Foreclosure in Experimental Markets," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 466-496, Autumn.
    7. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-142, March.
    8. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
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    Cited by:

    1. SANIN, Maria Eugenia & ZANAJ, Skerdilajda, 2007. "Environmental innovation under Cournot competition," CORE Discussion Papers 2007050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Éric Avenel & Clémence Christin, 2011. "Equilibrium strategic overbuying," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201205, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    3. Olivier Chatain, 2014. "How do strategic factor markets respond to rivalry in the product market?," Strategic Management Journal, Wiley Blackwell, vol. 35(13), pages 1952-1971, December.
    4. Emanuele Forlani, 2012. "Competition in Services and Efficiency of Manufacturing Firms:Does “Liberalization” Matter?," LICOS Discussion Papers 31112, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

    More about this item

    Keywords

    Entry deterrence; Foreclosure; Overinvestment; Bilateral monopoly;

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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