Competitive foreclosure

Roberto Burguet, Jozsef Sakovics

Research output: Contribution to journalArticlepeer-review

Abstract

We model oligopolistic firms, producing substitutes, who compete for inputs from capacity constrained suppliers in a decentralized market. Compared to a price‐taking input market, the incentive to foreclose downstream competitors leads to higher input prices and to a higher aggregate amount of input acquired. This novel feature mitigates the output reducing effect of downstream market power and may even restore efficiency in the unique (input) market clearing equilibrium. Other equilibria, where firms coordinate on which suppliers to target, result in excess supply (involuntary unemployment, if input is labor) and even higher input prices. Our insights generalize to alternative vertical structures.
Original languageEnglish
Pages (from-to)906-926
JournalRAND Journal of Economics
Volume48
Issue number4
Early online date13 Nov 2017
DOIs
Publication statusPublished - 30 Dec 2017

Keywords

  • simultaneous auctions
  • targeted offers
  • vertical linkages
  • involuntary unemployment

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