Refusal to Deal and Investment in Product Quality

Stephen Martin ()

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: Recent U.S. Supreme Court decisions have taken the views that monopoly profit is "incentive to innovate" and that obliging a vertically-integrated antitrust monopolist to deal with downstream rivals may lessen the incentive for the monopolist, the rival, or both to invest in ...economically beneficial facilities." In a model of endogenous product quality, refusal to deal increases the payoff of the integrated firm and reduces equilibrium investment in quality, consumer surplus, and net social welfare if varieties are moderate or good substitutes. If varieties are poor substitutes, the integrated firm maximizes its payoff setting a wholesale price that allows the downstream rival a small economic profit.

Keywords: refusal to deal; vertical exclusion; endogenous sunk cost. (search for similar items in EconPapers)
JEL-codes: L12 L13 L22 L41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2013-07
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Related works:
Chapter: Refusal to Deal and Investment in Product Quality (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1275

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