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Foreclosure in contests

Author

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  • Derek Clark
  • Øystein Foros
  • Jan 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.
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Suggested Citation

  • Derek Clark & Øystein Foros & Jan Sand, 2011. "Foreclosure in contests," Public Choice, Springer, vol. 148(1), pages 215-232, July.
    • Handle: RePEc:kap:pubcho:v:148:y:2011:i:1:p:215-232
    DOI: 10.1007/s11127-010-9653-2
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    References listed on IDEAS

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    Cited by:

    1. Young-Ro Yoon, 2017. "Strategic Disclosure Of Meaningful Information To Rival," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 806-824, April.

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    More about this item

    Keywords

    Foreclosure; Contest; Licensing; D21; L24;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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