Non-Discriminatory Pricing,Partial Backward Ownership,and Entry Deterrence |
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| Institution: | 1. University of Bayreuth, CESifo, and CEPR, Germany;2. Faculty of Law, Business and Economics, University of Bayreuth, Universitätsstr. 30, Bayreuth D-95440, Germany;3. University of Munich, CESifo, and CEPR, Germany;4. Department of Economics, University of Munich, Ludwigstr. 28 (Rgb.), München D-80539, Germany;1. Department of Economics, Finance and Legal Studies, The University of Alabama, 200 Alston Hall, Tuscaloosa, AL, 35487, USA;2. Econonomic Science Institute, Chapman Univeristy, One University Dr., Orange, CA 92866, USA;3. Department of Economics, Clemson University, 228 Sirrine Hall, Clemson, SC 29634, USA;1. Management School, University of Liverpool, Chatham Street, Liverpool L69 7ZH, United Kingdom;2. Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield S1 4DT, United Kingdom;3. Düsseldorf Institute for Competition Economics (DICE), Germany |
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| Abstract: | This article demonstrates that entry deterrence can occur when downstream incumbents hold non-controlling ownership shares of a supplier that does not price-discriminate. Such backward ownership implies a rebate on the input price for the incumbents and a competitive disadvantage for downstream entrants. An industry can use non-controlling ownership to change the pricing of a supplier in a way that appears to be accommodating but in fact deters entry. The supplier benefits from an obligation or a commitment to supply the customers under equal terms, as this induces profitable sales of ownership stakes to incumbent downstream firms. |
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