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Incentives for Sabotage in Vertically Related Industries

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.

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File URL: http://economics.missouri.edu/working-papers/2004/wp0404_mandy.pdf
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Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 0404.

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Length: 39 pgs.
Date of creation: 16 Dec 2004
Date of revision: 16 Dec 2004
Publication status: Forthcoming in Journal of Regulatory Economics (2006)
Handle: RePEc:umc:wpaper:0404
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Web page: http://economics.missouri.edu/
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  16. Weisman, Dennis L & Kang, Jaesung, 2001. "Incentives for Discrimination when Upstream Monopolists Participate in Downstream Markets," Journal of Regulatory Economics, Springer, vol. 20(2), pages 125-39, September.
  17. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, August.
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