Galetovic A., Bustos A. (2009).

Vertical Integration and Sabotage with a Regulated Bottleneck Monopoly. The B.E. Journal of Economic Analysis & Policy, vol. 9, (Topics), article 5

 

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.

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