Upstream incentives to encourage downstream competition in a vertically separated industry
Sandonís, J. y López, J.M.
Año de publicacion: 2015
Palabras clave: dominant upstream firm, downstream competition, wholesale price, two-part tariff contracts
Clasificación JEL: L11, L13, L14
We show in this paper that a dominant supplier, under observable two-part tariff contracts and an alternative, less efficient supply of the input, could benefit from more intense competition downstream provided that it has strong enough market power upstream. This implies that the incentives of upstream suppliers to foreclose downstream firms are less important than the previous literature had suggested. In fact, we find that the result also holds under observable linear contracts when we consider free entry in the downstream market.