Vertical Integration and Sabotage with a Regulated Bottleneck Monopoly

Alvaro Bustos and Galetovic Alexander ()
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Galetovic Alexander: Universidad de los Andes

The B.E. Journal of Economic Analysis & Policy, 2009, vol. 9, issue 1, 52

Abstract: We study the vertical integration and sabotage decisions of a regulated bottleneck monopoly that sells "access" to independent firms and may own a subsidiary downstream. We extend the literature in four directions by: (i) endogenizing vertical integration and linking it with the intensity of vertical economies or diseconomies à la Kaserman and Mayo (1991); (ii) systematically studying how vertical economies and diseconomies affect the intensity of sabotage; (iii) showing that the intensity of sabotage is determined by either a standard Lerner condition augmented by the direct cost of sabotage or a relation between the market share of the subsidiary and the elasticity of the derived demand for access; and (iv) systematically examining the welfare effect of vertical integration.

Keywords: bottleneck monopoly; sabotage; vertical integration; free entry; welfare (search for similar items in EconPapers)
Date: 2009
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Working Paper: Vertical Integration and Sabotage in Regulated Industries (2003)
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DOI: 10.2202/1935-1682.2172

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