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Collusion and downstream entry in a vertically integrated industry

Eric Avenel () and Stephane Caprice

Economics Working Paper Archive (University of Rennes 1 & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS

Abstract: We analyse the impact of an entry threat at the downstream level on the ability of a pair of vertically integrated incumbents to collude. We present an original model of horizontal product differentiation on the final market and characterize the structures of this market for which an entry threat facilitates collusion between incumbents. While the entry threat leaves collusion and deviation profits unchanged, it lowers profits in punishment periods. Consequently, an entry threat discourages deviations and facilitates collusion, thus benefiting incumbents.

Keywords: collusion; foreclosure; entry; vertical integration (search for similar items in EconPapers)
JEL-codes: D43 L13 L23 L40 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-bec, nep-com and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:tut:cremwp:201208

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