Cost-Raising Strategies

This paper studies a variety of strategies by which firms could disadvantage rivals by raising their costs. In this paper, we show that strategies designed to raise rivals' costs have a number of advantages over predatory pricing: They are credible, do not necessarily require the victim to exit, and do not necessarily require the existence of classical market power. The paper sets up a general model, proves a number of general results, and then applies the model to specific strategies involving "overbuying" inputs and vertical integration.