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Endogenous Contracts Under Bargaining in Competing Vertical Chains

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Author Info
Milliou, Chrysovalantou
Petrakis, Emmanuel
Vettas, Nikolaos

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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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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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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. George Symeonidis, 2009. "Downstream merger and welfare in a bilateral oligopoly," Economics Discussion Papers 671, University of Essex, Department of Economics. [Downloadable!]
  2. George Symeonidis, 2007. "Downstream Competition, Bargaining and Welfare," Economics Discussion Papers 625, University of Essex, Department of Economics. [Downloadable!]
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