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Endogenous Timing in Vertically-Related Markets

Author

Listed:
  • Din Hong-Ren

    (Department of Tourism and Hospitality, TransWorld University, No. 1221, Zhennan Rd., Douliu City, Yunlin County 640, Taiwan)

  • Sun Chia-Hung

    (Department of Economics, Soochow University, No. 56, Kueiyang Street, Section 1, Taipei100, Taiwan)

Abstract

This paper investigates the theory of endogenous timing by taking into account a vertically-related market where an integrated firm competes with a downstream firm. Contrary to the standard results in the literature, we find that both firms play a sequential game in quantity competition and play a simultaneous game in price competition. Under mixed quantity-price competition, the firm choosing a price strategy moves first and the other firm choosing a quantity strategy moves later in equilibrium. Given that the timing of choosing actions is determined endogenously, aggregate profit (consumer surplus) is higher (lower) under price competition than under quantity competition. Lastly, social welfare is higher under quantity competition than under price competition when the degree of product substitutability is relatively low.

Suggested Citation

  • Din Hong-Ren & Sun Chia-Hung, 2018. "Endogenous Timing in Vertically-Related Markets," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(2), pages 1-18, July.
    • Handle: RePEc:bpj:bejtec:v:18:y:2018:i:2:p:18:n:4
    DOI: 10.1515/bejte-2016-0103
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    References listed on IDEAS

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    More about this item

    Keywords

    Bertrand competition; Cournot competition; Endogenous timing; Vertically-related markets;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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