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Pricing to Preclude Sabotage in Regulated IndustriesAuthor(s): Debashis Pal, Arup Bose, David Sappington
Publication Name: International Journal of Industrial Organization
Volume: 51, Page Number(s): 162-184
We characterize the optimal access price and retail price for a vertically-integrated incumbent supplier (V) that faces limited competition from a new entrant in the retail sector. The optimal prices provide V with a relatively high wholesale profit margin and a relatively low retail profit margin. Consequently, V has no incentive to raise the costs of its retail rival.