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On intrabrand and interbrand competition: The strategic role of fees and royalties

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  • Saggi, Kamal
  • Vettas, Nikolaos

Abstract

We examine oligopolistic markets with both intrabrand and interbrand competition. We characterize equilibrium contracts involving a royalty (or wholesale price) and a fee when each upstream firm contracts with multiple downstream firms. Royalties control competition between own downstream firms at the expense of making them passive against rivals. The main result is that, when we endogenize the number of downstream firms, each upstream firm chooses to have only one downstream firm. This result is in sharp contrast to previous literature where competitors benefit by having a larger number of independent downstream firms under only fixed fee payments. We discuss how allowing for contracts that involve both fees and per-unit payments dramatically alters the strategic incentives.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 46 (2002)
Issue (Month): 1 (January)
Pages: 189-200

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Handle: RePEc:eee:eecrev:v:46:y:2002:i:1:p:189-200

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  1. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier.
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  7. Saggi, Kamal & Vettas, Nikolaos, 1999. "On Intrabrand and Interbrand Competition: The Strategic Role of Fees and Royalties," Working Papers 99-06, Duke University, Department of Economics.
  8. Luis Corchón, 1991. "Oligopolistic Competition Among Groups," Working Papers. Serie AD 1991-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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  14. Kamien, Morton I & Tauman, Yair, 1986. "Fees versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 471-91, August.
  15. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
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  18. Baye, Michael R & Crocker, Keith J & Ju, Jiandong, 1996. "Divisionalization, Franchising, and Divestiture Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 86(1), pages 223-36, March.
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Citations

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Cited by:
  1. Saggi, Kamal & Vettas, Nikolaos, 1999. "On Intrabrand and Interbrand Competition: The Strategic Role of Fees and Royalties," Working Papers 99-06, Duke University, Department of Economics.
  2. Eichberger, Jürgen & Mueller-Langer, Frank, 2012. "On the Welfare Effects of Exclusive Distribution Arrangements," MPRA Paper 39691, University Library of Munich, Germany.
  3. Milliou, Chrysovalantou & Petrakis, Emmanuel & Vettas, Nikolaos, 2003. "Endogenous Contracts Under Bargaining in Competing Vertical Chains," CEPR Discussion Papers 3976, C.E.P.R. Discussion Papers.
  4. Hideo Konishi & Michael Sandfort, 2001. "Anchor Stores," Boston College Working Papers in Economics 516, Boston College Department of Economics, revised 14 Nov 2002.
  5. Rafael MONER-COLONQUES & José J. SEMPERE-MONERRIS & Amparo URBANO, 2002. "The Manufacturers’ Choice of Brand Policy under Successive Duopoly," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  6. Hui-Ling Chung & Yan-Shu Lin & Jin-Li Hu, 2013. "Bundling strategy and product differentiation," Journal of Economics, Springer, vol. 108(3), pages 207-229, April.

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