Backward ownership, uniform pricing and entry deterrence

Matthias Hunold

No 250, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: Entry deterrence can occur when downstream incumbents hold non-controlling ownership shares of a supplier which is commited to charge uniform prices to all downstream firms. The ownership shares imply a rebate on the input price for the incumbents through the profit participation. Such backward ownership induces the supplier to accommodate entry by charging a low uniform price to all downstream firms in case of entry. However, just the entry-accommodating behavior reduces entry profits and thereby can lead to market foreclosure. Based on this theory, the article reviews a merger case in the financial services industry and draws conclusions for regulation and competition policy.

Keywords: entry deterrence; foreclosure; minority shareholdings; non-controlling partial ownership; uniform pricing; vertical integration (search for similar items in EconPapers)
JEL-codes: G34 L22 L40 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-com, nep-dcm and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:250

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