Where to Encourage Entry: Upstream or Downstream
University of Nottingham Economics Discussion Paper No. 03/13
20 Pages Posted: 2 Dec 2003
Date Written: August 2003
Abstract
In a vertically separated industry, where the input suppliers have significant market power, not only entry but also the markets (upstream and downstream) with entry possibilities might be a concern to the policy makers. While 'entry in the downstream market only' always increases welfare, 'entry in the upstream market only' increases welfare provided the technology of the upstream entrant is not sufficiently inferior to that of the incumbent. However, entry in the upstream market accompanied by entry in the downstream market may always increase welfare. Our results are important for the competition policy.
JEL Classification: D43, L13, 034
Suggested Citation: Suggested Citation
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