Monopoly Power with a Short Selling Constraint

Robert Baumann (), Bryan Engelhardt and David Fuller

No 1603, Working Papers from College of the Holy Cross, Department of Economics

Abstract: We show if a speculator can benefit from reducing a monopoly's rents through short selling, then a speculator may take a short position in a monopoly, overcome the barriers to entry, and compete with the monopoly. The competition drives down the monopoly�s rents, and as a result, the short position becomes profitable and covers the cost of entry. If entry is impossible, then the speculator may coordinate and pay the firm�s counter-parties to stop trading with the monopoly rather than entering. Either way, increasing a speculator�s ability to short a firm�s rents results in a constraint on the monopoly and forces it to act more like a price taker. The mechanism is a market based approach to antitrust.

Keywords: antitrust; monopoly; short selling (search for similar items in EconPapers)
JEL-codes: K21 L12 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2016-04
New Economics Papers: this item is included in nep-com, nep-cse, nep-ene, nep-ind, nep-law and nep-mic
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Published in Quarterly Review of Economics, Volume 67, February 2018, Page 8-13.

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Related works:
Journal Article: Monopoly power with a short selling constraint (2018)
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