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Endogenous Contracts Under Bargaining in Competing Vertical Chains

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  • Milliou, Chrysovalantou
  • Petrakis, Emmanuel
  • Vettas, Nikolaos

Abstract

We investigate the endogenous determination of contracts in competing vertical chains where upstream and downstream firms bargain first over the type of contract and then over the contract terms. Upstream firms always opt for non-linear contracts, which specify the input quantity and its total price. Downstream firms also opt for non-linear contracts, unless their bargaining power is low, in which case they prefer wholesale price contracts. While welfare is maximized under two-part tariffs, these are dominated in equilibrium by non-linear contracts.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3976.

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Date of creation: Jul 2003
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Handle: RePEc:cpr:ceprdp:3976

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Related research

Keywords: bargaining; non-linear contracts; strategic contracting; two-part tariffs; vertical chains; wholesale prices;

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Citations

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Cited by:
  1. George Symeonidis, 2008. "Downstream Competition, Bargaining, and Welfare," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 247-270, 03.
  2. George Symeonidis, 2009. "Downstream merger and welfare in a bilateral oligopoly," Economics Discussion Papers 671, University of Essex, Department of Economics.
  3. Lin, Ping & Saggi, Kamal, 2007. "Multinational firms, exclusivity, and backward linkages," Journal of International Economics, Elsevier, vol. 71(1), pages 206-220, March.
  4. Lin, Ping, 2006. "Strategic spin-offs of input divisions," European Economic Review, Elsevier, vol. 50(4), pages 977-993, May.

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