Downstream Integration by a Bottleneck Input Supplier Whose Regulated Wholesale Prices are Above Costs

Posted: 13 Aug 2001

See all articles by Gary Biglaiser

Gary Biglaiser

University of North Carolina

Patrick DeGraba

Federal Trade Commission - Antitrust I

Abstract

We examine the consequences of allowing a bottleneck input supplier to vertically integrate downstream and compete with users of the input when the input has a regulated price above cost. If the supplier maximizes the sum of short-run profits from the downstream market and input market, then allowing the vertical integration will increase social surplus, even if it causes sellers of competing differentiated products to exit the market. If the bottleneck supplier wishes to engage in predatory pricing, increasing the regulated price of the input above cost reduces the incentive to engage in predation. These questions are motivated primarily by assertions made in the public record that allowing Bell Operating Companies into long distance can be harmful if access rates are above cost.

Suggested Citation

Biglaiser, Gary and DeGraba, Patrick, Downstream Integration by a Bottleneck Input Supplier Whose Regulated Wholesale Prices are Above Costs. RAND Journal of Economics, Vol. 32, No. 2. Available at SSRN: https://ssrn.com/abstract=268001

Gary Biglaiser (Contact Author)

University of North Carolina ( email )

Chapel Hill, NC 27599
United States
919-966-4884 (Phone)
919-966-4986 (Fax)

Patrick DeGraba

Federal Trade Commission - Antitrust I ( email )

600 Pennsylvania Avenue, NW
Rm. 4249
Washington, DC 20580
United States
202-326-2855 (Phone)
202-326-3443 (Fax)

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