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Competitive foreclosure

József Sákovics () and Roberto Burguet

ESE Discussion Papers from Edinburgh School of Economics, University of Edinburgh

Abstract: We present a model where oligopolistic firms producing substitutes compete for inputs in a decentralized market. Input suppliers are capacity constrained (or produce under exclusivity). Compared to a price-taking input market, the incentive to foreclose downstream competitors not only leads to higher input prices, but it also results in a higher aggregate amount of input acquired. This novel feature mitigates the output reducing e§ect of downstream market power and may even restore e¢ ciency in the unique (input) market clearing equilibrium. Other equilibria where Örms endogenously coordinate on which suppliers to target result in excess input supply (involuntary unemployment, if input is labor) and even higher input prices. Our insights generalize to alternative vertical structures.

Keywords: simultaneous auctions; targeted offers; vertical linkages; involuntary unemployment (search for similar items in EconPapers)
JEL-codes: D43 L11 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
Date: 2017-02
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