Product Differentiation when Competing with the Suppliers of Bottleneck Inputs
In this article, we analyze the product differentiation decision of a downstream entrant that purchases access to a bottleneck input from one of two vertically integrated incumbents, who will compete with him in the downstream market. We develop a three-stage model, where first an entrant chooses his product, then the entrant negotiates the access price with two incumbents, and finally the firms compete on retail prices. Contrary to what one might expect, both the entrant and the access provider prefer that the entrant chooses a product that is a closer substitute of the product of the access provider than of the product of the other incumbent. This occurs because the access provider interacts with the entrant both in the retail market and the wholesale market. We also consider the cases where both parties, rather than only the incumbents, make the access price offers, where the bargaining stage precedes the location stage, and where there is open access regulation.
|Date of creation:||Jul 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (351) 21 790 20 00
Fax: (351) 21 790 20 99
Web page: http://www.autoridadedaconcorrencia.pt/Email:
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rey, Patrick & Tirole, Jean, 2003.
"A Primer on Foreclosure,"
IDEI Working Papers
203, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2005.
- Biglaiser, Gary & DeGraba, Patrick, 2001. "Downstream Integration by a Bottleneck Input Supplier Whose Regulated Wholesale Prices Are Above Costs," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 302-15, Summer.
- Gotz, Georg, 2005. "Endogenous sequential entry in a spatial model revisited," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 249-261, April.
- Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
- HAMILTON, Jonathan H. & THISSE, Jacques-François & WESKAMP, Anita, .
"Spatial discrimination. Bertrand vs. Cournot in a model of location choice,"
CORE Discussion Papers RP
-846, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Hamilton, Jonathan H. & Thisse, Jacques-Francois & Weskamp, Anita, 1989. "Spatial discrimination : Bertrand vs. Cournot in a model of location choice," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 87-102, February.
- Tabuchi, Takatoshi, 1994. "Two-stage two-dimensional spatial competition between two firms," Regional Science and Urban Economics, Elsevier, vol. 24(2), pages 207-227, April.
- Neven, Damien J., 1987. "Endogenous sequential entry in a spatial model," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 419-434.
- Anderson, S., 1986.
"Equilibrium existence in the linear model of spatial competition,"
CORE Discussion Papers
1986013, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Anderson, Simon P, 1988. "Equilibrium Existence in the Linear Model of Spatial Competition," Economica, London School of Economics and Political Science, vol. 55(220), pages 479-91, November.
- Tabuchi, T. & Thisse, J.-F., .
"Asymetric equilibria in spatial competition,"
CORE Discussion Papers RP
-1151, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Martinez-Giralt, Xavier & Neven, Damien J, 1988. "Can Price Competition Dominate Market Segmentation?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 431-42, June.
- Peitz, Martin, 2005. "Asymmetric access price regulation in telecommunications markets," European Economic Review, Elsevier, vol. 49(2), pages 341-358, February.
- Anderson, Simon P & Neven, Damien J, 1991. "Cournot Competition Yields Spatial Agglomeration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 793-808, November.
- Anderson, Simon, 1987.
"Spatial competition and price leadership,"
International Journal of Industrial Organization,
Elsevier, vol. 5(4), pages 369-398.
- Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
- Yongmin Chen, 2000.
"On Vertical Mergers and Their Competitive Effects,"
Econometric Society World Congress 2000 Contributed Papers
0383, Econometric Society.
- Valletti, Tommaso, 1999.
"Location Choice and Price Discrimination in a Duopoly,"
CEPR Discussion Papers
2322, C.E.P.R. Discussion Papers.
- Valletti, Tommaso M., 2002. "Location choice and price discrimination in a duopoly," Regional Science and Urban Economics, Elsevier, vol. 32(3), pages 339-358, May.
- Vickrey, William S. & Anderson, Simon P. & Braid, Ralph M., 1999. "Spatial competition, monopolistic competition, and optimum product diversity," International Journal of Industrial Organization, Elsevier, vol. 17(7), pages 953-963, October.
- Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
- B. Curtis Eaton & Myrna Holtz Wooders, 1985. "Sophisticated Entry in a Model of Spatial Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 282-297, Summer.
- Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
- Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-42, March.
- Hinloopen, Jeroen & van Marrewijk, Charles, 1999. "On the limits and possibilities of the principle of minimum differentiation1," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 735-750, July.
When requesting a correction, please mention this item's handle: RePEc:pca:wpaper:25. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Duarte Brito)
If references are entirely missing, you can add them using this form.