Cross-Market Integration and Sabotage
Sabotage activities often raise regulatory concerns due to the potential negative effects on competition and social welfare. These concerns are amplified when firms serving complementary markets integrate since the integrated firm may engage in multi-market sabotage. Interestingly, we find that the integrated firm may not have the incentive to engage in sabotage at all. It prefers to engage in sabotage only when it has cost advantages over its rivals in at least one of the markets. At the extreme, the firm’s sabotage actions could force some products out of the market and thus, there might be a need for regulatory intervention.