University of Cincinnati Lindner College of Business

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Pricing to Preclude Sabotage in Regulated Industries

Author(s): Debashis Pal, Arup Bose, David Sappington

Status: Published
Year: 2017
Publication Name: International Journal of Industrial Organization
Volume: 51, Page Number(s): 162-184


Abstract

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.


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