A government authority regulates an upstream monopolist only if there is a sufficient welfare increase to justify doing so. A downstream firm strategically increases costs in order to force regulation upstream. The decision to regulate increases profit downstream, reduces profit upstream and...

We show how an upstream firm by using a price-dependent profit-sharing rule can prevent destructive competition between downstream firms that produce relatively close substitutes. With this rule the upstream firm induces the retailers to behave as if demand has become less price elastic. As a...