Cost-Raising Strategies

Steven C Salop and David T Scheffman

Journal of Industrial Economics, 1987, vol. 36, issue 1, 19-34

Abstract: This paper studies a variety of strategies by which firms could disadvantage rivals by raising their costs. In this paper, the authors show that strategies designed to raise r ivals' costs have a number of advantages over predatory pricing: they are credible; do not necessarily require the victim to exit; and do not necessarily require the existence of classical market power. The paper sets up a general model; proves a number of general results; an d then applies the model to specific strategies involving "overbuyin g" inputs and vertical integration. Copyright 1987 by Blackwell Publishing Ltd.

Date: 1987
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