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The Entry Incentives of Complementary Producers: A Simple Model with Implications for Antitrust Policy

Juan S. Lleras and Nathan H. Miller, EAG 09-7, November 2009
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We model competition between two firms in a vertical upstream-downstream relationship. Each firm can pay a sunk cost to enter the other’s market. For equilibria in which both firms enter, the downstream price can be lower than the joint profit maximizing level, and coordination (e.g., through merger) is anticompetitive.

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