Monday, June 14, 2010
The Entry Incentives of Complementary Producers: A Simple Model with Implications for Antitrust Policy
Posted by D. Daniel Sokol
Juan S. Lleras (University of California, Berkeley) and Nathan H. Miller (Economic Analysis Group, Antitrust Division, U.S. Department of Justice) have produced The Entry Incentives of Complementary Producers: A Simple Model with Implications for Antitrust Policy.
ABSTRACT: We model competition between two firms in a vertical upstream-downstream relationship. Each firm can pay a sunk cost to enter the other’s market. For equilibria in which both firms enter, the downstream price can be lower than the joint profit maximizing level, and coordination (e.g., through merger) is anticompetitive.