Raising rivals’ fixed costs

Morten Hviid*, Matthew Olczak

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

This article demonstrates that raising fixed costs can serve as a credible mechanism for a well placed firm to exclude its rivals. We identify a number of credible avenues, such as increased regulation, vexatious litigation and increased prices for essential inputs, through which such a firm can raise fixed costs. We show that for a wide range of oligopoly models this may be a profitable strategy, even if the firm’s own fixed costs are affected as much (or even more) than its rivals and even if it is less efficient. The resulting reduction in the number of firms in the market is detrimental to consumer welfare and hence worthy of scrutiny by competition and regulatory authorities.

Original languageEnglish
Pages (from-to)19-36
Number of pages18
JournalInternational Journal of the Economics of Business
Volume23
Issue number1
DOIs
Publication statusPublished - 1 Jan 2016

Bibliographical note

© 2015 The Author(s). Published by Taylor & Francis.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/Licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Funding: ESRC (RES-578-28-0002)

Keywords

  • entry deterrence
  • exclusion
  • fixed costs
  • monopolisation
  • raising rivals’ costs

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