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Incentives for Sabotage in Vertically Related Industries

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Abstract

We show that the incentives a vertically integrated supplier may have to disadvantage or "sabotage" the activities of downstream rivals vary with both the type of sabotage and the nature of downstream competition. Cost-increasing sabotage is typically profitable under both Cournot and Bertrand competition. In contrast, demand-reducing sabotage is often profitable under Cournot competition, but unprofitable under Bertrand competition. Incentives for sabotage can vary non-monotonically with the degree of product differentiation.

Suggested Citation

  • David Mandy & David E. M. Sappington, 2004. "Incentives for Sabotage in Vertically Related Industries," Working Papers 0404, Department of Economics, University of Missouri, revised 16 Dec 2004.
  • Handle: RePEc:umc:wpaper:0404
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    File URL: https://economics.missouri.edu/working-papers/2004/wp0404_mandy.pdf
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    Keywords

    Regulation; Vertical Integration; Access Pricing; Sabotage;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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