Discussion Papers, Department of Finance and Management Science, Norwegian School of Economics (NHH)
No 2008/27:
Foreclosure in contests
Derek J. Clark ()
, Øystein Foros ()
and Jan Yngve Sand ()
Abstract: We consider a contest in which one firm is a favourite as
it initially has a cost advantage over rivals. Instead of taking the set of
rivals as given, we consider the possibility that the favourite transfers
the source of its advantage wholly or partially to a subset of rival firms.
The result of this may be foreclosure of those firms that do not receive
the cost reduction. We present conditions under which this transfer will be
expected to occur, and show that the dominant firm will prefer to grant
some rivals the maximum cost reduction even if a partial transfer can be
made. Furthermore we consider the welfare properties of excluding some
rivals. Applications include lobbying, patent races and access to essential
infrastructure.
Keywords: Foreclosure; contest; (follow links to similar papers)
JEL-Codes: D21; L24; (follow links to similar papers)
20 pages, February 10, 2009
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