Incentives for sabotage in vertically related industries |
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Authors: | David M Mandy David E M Sappington |
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Institution: | (1) Department of Economics, University of Missouri, 118 Professional Building, Columbia, MO 65211, USA;(2) Department of Economics, University of Florida, PO Box 117140, Gainesville, FL 32611, USA |
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Abstract: | We show that the incentives of a vertically integrated supplier to “sabotage” the activities of downstream rivals can vary
with both the type of sabotage and the nature of downstream competition. Cost-increasing sabotage is typically profitable
under both Cournot and Bertrand competition. In contrast, demand-reducing sabotage is often profitable under Cournot competition,
but unprofitable under Bertrand competition. Incentives for sabotage can vary non-monotonically with the degree of product
differentiation.
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Keywords: | Regulation Sabotage Vertically integrated industries |
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