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Title:Virtual capacity and competition PDF Logo
Authors:Schultz, Christian
Issue Date:2005
Series/Report no.:CESifo working papers 1487
Abstract:In several European merger cases competition authorities have demanded that the merging firm auctions off virtual capacity. The buyer of virtual capacity receives an option on an amount of output at a pre-specified price, typically equal to marginal cost. This output is sold in the market in competition with the merging firm. The paper compares sale of physical and virtual capacity by the merging firm and shows that virtual capacity leads to a less competitive outcome. The merging firm can build up a reputation for producing little, so that the output price increases in the market, and this increases the auction price on virtual capacity.
Subjects:virtual capacity
reputation
tacit collusion
antitrust
mergers
competition policy
JEL:D44
L41
L40
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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