Access to Bottleneck Inputs under Oligopoly: a Prisoners Dilemma?

Duarte Brito and Pedro Pereira

No 16, Working Papers from Portuguese Competition Authority

Abstract: In this article, we analyze the incentives of vertically integrated oligopolists to concede access to their bottleneck inputs to an entrant in the downstream retail market. We develop a two-stage model, where in the first stage a downstream entrant negotiates an access price with three vertically integrated incumbents, and in stage 2 firms compete on Salop's circle. The incumbents may be asymmetrically located on the circle, to reflect differences in consumer shares. For some levels of asymmetry, the incumbents face a prisoners dilemma with respect to conceding access to their bottleneck inputs. Entry by a downstream firm may lead to lower retail prices. However, entry may also lead to higher retail prices for the access provider and for the entrant.

Keywords: Bottleneck Input; Vertical Integration; Oligopoly; Entry (search for similar items in EconPapers)
JEL-codes: L43 L96 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mic
Date: 2006-11
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http://www.concorrencia.pt/download/WP16_Bottleneck_Feb_2008.pdf First version, 2006 (application/pdf)

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Persistent link: http://EconPapers.repec.org/RePEc:pca:wpaper:16

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