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Competitive foreclosure

AuthorsBurguet, Roberto ; Sákovics, József
Issue Date13-Nov-2017
CitationRAND Journal of Economics 48(4): 906–926 (2017)
AbstractWe model oligopolistic firms, producing substitutes, who compete for inputs from capacity con- strained suppliers in a decentralized market. Compared to a price-taking input market, the incen- tive to foreclose downstream competitors leads to higher input prices and to a higher aggregate amount of input acquired. This novel feature mitigates the output reducing effect of downstream market power and may even restore efficiency in the unique (input) market clearing equilibrium. Other equilibria, where firms coordinate on which suppliers to target, result in excess supply (in- voluntary unemployment, if input is labor) and even higher input prices. Our insights generalize to alternative vertical structures.
Publisher version (URL)https://doi.org/10.1111/1756-2171.12206
Appears in Collections:(IAE) Artículos
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