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Incentives for sabotage in vertically related industries

Abstract

We show that the incentives of a vertically integrated supplier to “sabotage” the activities of downstream rivals can vary with both the type of sabotage and the nature of downstream competition. Cost-increasing sabotage is typically profitable under both Cournot and Bertrand competition. In contrast, demand-reducing sabotage is often profitable under Cournot competition, but unprofitable under Bertrand competition. Incentives for sabotage can vary non-monotonically with the degree of product differentiation.

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Correspondence to David E. M. Sappington.

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Mandy, D.M., Sappington, D.E.M. Incentives for sabotage in vertically related industries. J Regul Econ 31, 235–260 (2007). https://doi.org/10.1007/s11149-006-9015-7

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Keywords

  • Regulation
  • Sabotage
  • Vertically integrated industries

JEL Classifications

  • L51
  • L10
  • L22