Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, August 16, 2017

Backward ownership, uniform pricing and entry deterrence

Matthias Hunold has written on Backward ownership, uniform pricing and entry deterrence.

ABSTRACT: Entry deterrence can occur when downstream incumbents hold non-controlling ownership shares of a supplier which is commited to charge uniform prices to all downstream firms. The ownership shares imply a rebate on the input price for the incumbents through the profit participation. Such backward ownership induces the supplier to accommodate entry by charging a low uniform price to all downstream firms in case of entry. However, just the entry-accommodating behavior reduces entry profits and thereby can lead to market foreclosure. Based on this theory, the article reviews a merger case in the financial services industry and draws conclusions for regulation and competition policy.

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