A BEJEAP Topics article.

Abstract

We study the vertical integration and sabotage decisions of a regulated bottleneck monopoly that sells "access" to independent firms and may own a subsidiary downstream. We extend the literature in four directions by: (i) endogenizing vertical integration and linking it with the intensity of vertical economies or diseconomies à la Kaserman and Mayo (1991); (ii) systematically studying how vertical economies and diseconomies affect the intensity of sabotage; (iii) showing that the intensity of sabotage is determined by either a standard Lerner condition augmented by the direct cost of sabotage or a relation between the market share of the subsidiary and the elasticity of the derived demand for access; and (iv) systematically examining the welfare effect of vertical integration.

Submitted: December 29, 2008 · Accepted: August 11, 2009 · Published: September 1, 2009

Recommended Citation

Bustos, Alvaro E. and Galetovic, Alexander (2009) "Vertical Integration and Sabotage with a Regulated Bottleneck Monopoly," The B.E. Journal of Economic Analysis & Policy: Vol. 9 : Iss. 1 (Topics), Article 35.
DOI: 10.2202/1935-1682.2172
Available at: http://www.bepress.com/bejeap/vol9/iss1/art35