Collective exclusion |
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| Institution: | 1. Analysis Group Ltd., London, UK;2. European Commission, DG COMP, Madou 17/13, Saint-Josse-ten-Node B-1210, Belgium;1. Department of Economics, Michigan State University, 110 Marshall Adams Hall, East Lansing, MI 48824-1038, United States;2. School of Economics, Yonsei University, Seoul, Korea;3. Department of Economics and MaCCI, University of Mannheim, D-68131 Mannheim, Germany;4. CEPR, United Kingdom;5. CESifo, Germany;6. ZEW, Germany;1. University of Nottingham and CEP, University Park, Nottingham, NG7 2RD, United Kingdom;2. CEPR, United Kingdom;3. University of Mannheim, L7 3-5, 68131 Mannheim, Germany;1. The Buchmann Faculty of Law, Tel-Aviv University, Israel;2. Coller School of Management, Tel Aviv University, Israel |
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| Abstract: | This paper studies collusion among vertically integrated incumbents who may either delegate output production to a more efficient downstream entrant (“accommodating regime”) or refuse to supply the entrant and produce the final good themselves (“exclusionary regime”). Accommodating agreements yield higher collusive profits, but suffer from contractual frictions: An incumbent may first offer the entrant a high wholesale price for the input, and then undercut the entrant on the final good market, so that the entrant cannot recover its high input costs downstream. When the efficiency gap between the incumbents and the entrant is small, this hold-up effect dominates over the efficiency effect. Depending on modeling choices, exclusionary collusion is then either more profitable than accommodation, or is the only sustainable collusive regime. |
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