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Input pricing by an upstream monopolist into imperfectly competitive downstream markets

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  • Pinopoulos, Ioannis N.

Abstract

When entry is independent from profitability conditions, the upstream supplier's optimal pricing policy is invariant with respect to downstream market structure. This price invariance result, however, is reversed when there is free entry in downstream market. When entry is endogenously dependent on profitability conditions, the upstream supplier's price setting behavior depends on the number of operative firms in the final goods market. We show that the upstream supplier charges a higher input price under a free entry situation in downstream market than under a no-entry condition. We also show that a higher input price is set under Bertrand competition than under Cournot competition in a downstream market with free entry.

Suggested Citation

  • Pinopoulos, Ioannis N., 2011. "Input pricing by an upstream monopolist into imperfectly competitive downstream markets," Research in Economics, Elsevier, vol. 65(3), pages 144-151, September.
    • Handle: RePEc:eee:reecon:v:65:y:2011:i:3:p:144-151
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    References listed on IDEAS

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    1. Koh, Winston T.H., 2008. "Market competition, social welfare in an entry-constrained differentiated-good oligopoly," Economics Letters, Elsevier, vol. 100(2), pages 229-233, August.
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    6. Rajeev K. Tyagi, 1999. "On the Effects of Downstream Entry," Management Science, INFORMS, vol. 45(1), pages 59-73, January.
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    Cited by:

    1. Manasakis, Constantine & Vlassis, Minas, 2014. "Downstream mode of competition with upstream market power," Research in Economics, Elsevier, vol. 68(1), pages 84-93.
    2. Alberto Iozzi & Tommaso Valletti, 2014. "Vertical Bargaining and Countervailing Power," American Economic Journal: Microeconomics, American Economic Association, vol. 6(3), pages 106-135, August.
    3. Wang, Leonard F.S. & Lee, Jen-yao, 2014. "Ranking the optimum tariff and the maximum revenue tariff in vertically related markets," Research in Economics, Elsevier, vol. 68(3), pages 222-229.
    4. Wang, Leonard F.S. & Lee, Jen-Yao, 2012. "Domestic entry, optimum-welfare and maximum-revenue tariffs," Research in Economics, Elsevier, vol. 66(1), pages 106-109.
    5. Yenipazarli, Arda, 2021. "Downstream entry revisited: Economic effects of entry in vertically-related markets," Omega, Elsevier, vol. 103(C).
    6. Ioannis N. Pinopoulos, 2014. "A note on the effects of downstream free entry on wholesale pricing," Discussion Paper Series 2014_05, Department of Economics, University of Macedonia, revised Sep 2014.
    7. repec:otg:wpaper:1403 is not listed on IDEAS

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    More about this item

    Keywords

    Vertical relationship Pricing Competition Free entry;

    JEL classification:

    • 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
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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