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Quantity versus price competition in a vertically related market with sequential contracts

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  • Toshiki Matsuoka

Abstract

The study aims to re-examine the results of quantity and price competition. I consider a vertically related market where one upstream firm sequentially contracts with two downstream firms. I find that consumer surplus and social welfare under quantity competition can be higher than those under price competition. Under price competition with sequential contracting, an upstream firm offers a high wholesale price to a downstream firm contracted later, to help a downstream firm contracted earlier. The downstream firm contracted earlier anticipates this and sets a high retail price. Because prices are strategic complements, the downstream firm contracted later also sets a high retail price. Hence, competition in the downstream sector is softer under price competition, and the rankings of consumer surplus and social welfare can be reversed.

Suggested Citation

  • Toshiki Matsuoka, 2023. "Quantity versus price competition in a vertically related market with sequential contracts," Applied Economics Letters, Taylor & Francis Journals, vol. 30(9), pages 1239-1243, May.
    • Handle: RePEc:taf:apeclt:v:30:y:2023:i:9:p:1239-1243
    DOI: 10.1080/13504851.2022.2044007
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