Sabotage!

We analyze the incentives of a vertically-integrated producer (VIP) to engage in "self-sabotage". Self-sabotage occurs when a VIP intentionally increases its upstream costs and/or reduces the quality of its upstream product. We identify conditions under which self-sabotage is profitable for the VIP even though it raises symmetrically the cost of the upstream product to all downstream producers and/or reduces symmetrically the quality of all downstream products. Under specified conditions, self-sabotage can enable a VIP to disadvantage downstream rivals differentially without violating parity requirements. Key words: regulation, parity, sabotage. JEL Classification: L43, L51, L22.

• Type: Journal
• Year: 2010
• Where: COMPUTER
• Authors: David Alan Grier
• Keywords: Applied Computing, COMPUTER 2010, Downstream Producers, Upstream Product, Vertically-integrated Producer