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Monopoly Power with a Short Selling Constraint

Author

Listed:
  • Robert Baumann

    (Department of Economics, College of the Holy Cross)

  • Bryan Engelhardt

    (Department of Economics, College of the Holy Cross)

  • David L. Fuller

    (College of Business, University of Wisconsin - Oshkosh)

Abstract

We show if a speculator can benefit from reducing a monopoly's rents through short selling, then a speculator may take a short position in a monopoly, overcome the barriers to entry, and compete with the monopoly. The competition drives down the monopoly�s rents, and as a result, the short position becomes profitable and covers the cost of entry. If entry is impossible, then the speculator may coordinate and pay the firm�s counter-parties to stop trading with the monopoly rather than entering. Either way, increasing a speculator�s ability to short a firm�s rents results in a constraint on the monopoly and forces it to act more like a price taker. The mechanism is a market based approach to antitrust.

Suggested Citation

  • Robert Baumann & Bryan Engelhardt & David L. Fuller, 2016. "Monopoly Power with a Short Selling Constraint," Working Papers 1603, College of the Holy Cross, Department of Economics.
    • Handle: RePEc:hcx:wpaper:1603
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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