“Access to Bottleneck Inputs under Oligopoly: a Prisoners Dilemma?“

Duarte Brito and Pedro Pereira

Abstract WP n.º 16:

In this article, we analyze the incentives of vertically integrated oligopolists to concede access to their bottleneck inputs to an entrant in the downstream market. We develop a two-stage game, where in the .first stage a downstream entrant negotiates an access price with two vertically integrated incumbents, and in the second stage firms compete on Salop.s circle. The firms may be asymmetrically located on the circle, to reflect differences in consumer shares. For some levels of asymmetry, the incumbents face a prisoners’ dilemma with respect to conceding access to their bottleneck inputs. Entry by a downstream firm may lead to lower retail prices. However, entry may also lead to higher retail prices for the access provider and for the entrant. We also consider the cases where there are three incumbents, where the entrant makes the access price offers, and where the incumbents collude.

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