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Price vs. quantity competition in a vertically related market revisited

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  • Basak, Debasmita
  • Mukherjee, Arijit

Abstract

In a recent paper, Alipranti et al. (2014) show that, in a vertically related market, Cournot competition yields higher social welfare than Bertrand competition if the upstream firm subsidises the downstream firm’s production via negative wholesale input prices. However, the assumption of a negative input price is not economically viable as it encourages the downstream firms to buy an unbounded amount of inputs. We show that the welfare ranking is reversed once we introduce a non-negativity constraint on the input prices.

Suggested Citation

  • Basak, Debasmita & Mukherjee, Arijit, 2017. "Price vs. quantity competition in a vertically related market revisited," Economics Letters, Elsevier, vol. 153(C), pages 12-14.
    • Handle: RePEc:eee:ecolet:v:153:y:2017:i:c:p:12-14
    DOI: 10.1016/j.econlet.2017.01.021
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    1. Basak, Debasmita & Mukherjee, Arijit, 2017. "Price vs. quantity competition in a vertically related market revisited," Economics Letters, Elsevier, vol. 153(C), pages 12-14.
    2. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    3. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2014. "Price vs. quantity competition in a vertically related market," Economics Letters, Elsevier, vol. 124(1), pages 122-126.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ismail Saglam, 2023. "Centralized bargaining with pre‐donation in a vertically related industry," Manchester School, University of Manchester, vol. 91(3), pages 233-259, June.
    2. Basak, Debasmita & Mukherjee, Arijit, 2017. "Price vs. quantity competition in a vertically related market revisited," Economics Letters, Elsevier, vol. 153(C), pages 12-14.
    3. Wang, Xingtang & Wang, Leonard F.S., 2021. "Vertical product differentiation, managerial delegation and social welfare in a vertically-related market," Mathematical Social Sciences, Elsevier, vol. 113(C), pages 149-159.
    4. Prasun Bhattacharjee & Biswajit Mandal & Ravi Radhakrishnan, 2022. "Informal input sector and its impact on output market competitiveness," Indian Economic Review, Springer, vol. 57(2), pages 553-564, December.
    5. Alipranti, Maria & Petrakis, Emmanuel, 2020. "Fixed fee discounts and Bertrand competition in vertically related markets," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 19-26.
    6. Wang, Xingtang, 2022. "Input price discrimination, pricing contract and social welfare," Mathematical Social Sciences, Elsevier, vol. 119(C), pages 91-96.
    7. Joachim Heinzel & Simon Hoof, 2020. "Oligopolistic Upstream Competition with Differentiated Inputs," Working Papers CIE 129, Paderborn University, CIE Center for International Economics.

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    More about this item

    Keywords

    Bargaining; Bertrand; Cournot; Two-part tariffs; Vertical pricing; Welfare;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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