Incentives for capacity acquisition in vertical structures
by
Lluis Bru
Universidad de Malaga

In an industry where one of the suppliers has a cost advantage and vertical contracts are secret, it is shown that the creation of a dominant firm downstream through the acquisition of capacity of already existing firms is a profitable strategy. A dominant firm downstream may counterweight the power of the upstream firm in a better way, and hence obtains better deals from the supplier, than price taking downstream firms. The (possibly harmful) effects on consumers and the implications for import licensing are also studied.

Date received: June 28, 2000

Copyright © 2000 by the author(s). The author(s) of this document and the organizers of the conference have granted their consent to include this abstract in Atlas Conferences Inc. Document # cafl-06.