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Double markups under bilateral vertical contracting

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  • Fu, Xiao
  • Tan, Guofu

Abstract

This paper examines price markups at the upstream and downstream levels of a bilateral vertical structure in which firms provide essential inputs to one another and engage in price competition in the downstream market. We show that the ratios of noncooperative equilibrium markups are primarily determined by the price elasticities of demand and the retail pass-through rates and, moreover, that coordination on input prices leads to a collusive equilibrium outcome in the final-product market.

Suggested Citation

  • Fu, Xiao & Tan, Guofu, 2024. "Double markups under bilateral vertical contracting," Economics Letters, Elsevier, vol. 237(C).
    • Handle: RePEc:eee:ecolet:v:237:y:2024:i:c:s0165176524001435
    DOI: 10.1016/j.econlet.2024.111660
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    References listed on IDEAS

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    1. Hubert Pun, 2015. "The more the better? Optimal degree of supply-chain cooperation between competitors," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 66(12), pages 2092-2101, December.
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    3. Adachi, Takanori & Ebina, Takeshi, 2014. "Cost pass-through and inverse demand curvature in vertical relationships with upstream and downstream competition," Economics Letters, Elsevier, vol. 124(3), pages 465-468.
    4. Timothy F. Bresnahan & Peter C. Reiss, 1985. "Dealer and Manufacturer Margins," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 253-268, Summer.
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    6. Vives, Xavier, 1990. "Nash equilibrium with strategic complementarities," Journal of Mathematical Economics, Elsevier, vol. 19(3), pages 305-321.
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    Cited by:

    1. Fu, Xiao & Tan, Guofu, 2025. "Competition and cooperation in international air travel markets with complements and substitutes," International Journal of Industrial Organization, Elsevier, vol. 103(PB).

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    More about this item

    Keywords

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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