In this paper, we consider a market that is operated by a non-integrated monopoly upstream that owns an important essential facility and an duopolistic market downstream that is facing entry in the monopolistic upstream market. We show that: (i) for small fixed costs of building a new facility the unique equilibrium entails vertical integration for all firms and duplication of essential facilities; (ii) for an intermediate range, the unique equilibrium entails full vertical integration and a shared-facility; and (iii) for large fixed costs, the unique equilibrium entails vertical integration by the incumbent, no integration by the entrant and a shared-facility. In addition, the equilibrium in (i) is always efficient relative to a shared-facility agreement, the equilibrium in (ii) is inefficient relative to duplication of essential facilities for fixed costs lower than certain cutoff and efficient otherwise, and the equilibrium in (iii) is always efficient relative to duplication of essential facilities.
Available at: http://works.bepress.com/felipe_balmaceda/8/