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Vertical product differentiation, managerial delegation and social welfare in a vertically-related market

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  • Wang, Xingtang
  • Wang, Leonard F.S.

Abstract

In this paper, we analyze the influence of the delegation of downstream firms that produce different quality of products on the profits, consumer surplus and social welfare in a vertically related market. We find that whether it is price or quantity competition, the delegation can enable the downstream firms to grab the profits from their input suppliers. A downstream firm that produces a high-quality product earns more from suppliers than that producing a low-quality product; however, the delegation of downstream firms brings about the reduction of consumer surplus and social welfare. Further analysis has revealed that delegation adopted by downstream firms reverses their profit comparisons under different competitive modes; that is, the downstream firms produce higher profits under quantity competition without delegation while possessing higher profits under price competition with delegation.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:matsoc:v:113:y:2021:i:c:p:149-159
    DOI: 10.1016/j.mathsocsci.2021.06.001
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    References listed on IDEAS

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    Cited by:

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    3. Yasuhiko Nakamura, 2022. "Corporate social responsibility focusing on consumer surplus and endogenous competition structure: A case of managerial delegation," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 3000-3018, October.
    4. Shih-Shen Chen & Chien-Shu Tsai & Chen Chen, 2022. "Quid Pro Quo CSR and Trade Liberalization in a Bilateral Monopoly," Games, MDPI, vol. 13(3), pages 1-11, May.
    5. Xingtang Wang, 2023. "Who is more aggressive under vertical product differentiation?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 608-618, January.
    6. Ji Sun & Qiang Gong & Leonard F. S. Wang, 2022. "Revenge consumption, government‐led voucher, and social welfare," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2570-2577, September.

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