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Vertical Opportunism, Bargaining, and Share-Based Agreements

Author

Listed:
  • Emmanuel Petrakis

    (University of Crete)

  • Panagiotis Skartados

    (Athens University of Economics and Business)

Abstract

In a two-tier industry where an upstream monopolist supplies an essential input to horizontally differentiated downstream firms, two-part tariffs (TPTs) and share-based agreements (SBAs) are two contractual agreements for addressing potential double-marginalization problems. In this paper, we show that SBAs are not equivalent to TPTs. This holds under both secret and interim observable contract terms, as well as under quantity and price downstream competition. SBAs lead to higher wholesale and retail prices, and lower aggregate output, consumer surplus, and social welfare. However, under exclusive dealing between multiple upstream suppliers and downstream firms, these two types of vertical contracts are equivalent.

Suggested Citation

  • Emmanuel Petrakis & Panagiotis Skartados, 2022. "Vertical Opportunism, Bargaining, and Share-Based Agreements," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(4), pages 549-565, June.
    • Handle: RePEc:kap:revind:v:60:y:2022:i:4:d:10.1007_s11151-022-09869-8
    DOI: 10.1007/s11151-022-09869-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Bargaining; Share-based agreements; Two-part tariffs; Vertical contracting; Vertical opportunism;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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