Predatory Accommodation In Vertical Contracting With Externalities
The goal of this paper is to analyze vertical contracts between manufacturers and retailers in a channel including the upstream input market. Using a Nash bargaining framework, we study the contract negotiations between manufacturers and the common retailer, both in a simultaneous and sequential game. The oligopsonistic behavior of manufacturers on the upstream market provides a new explanation for predatory accommodation. With two-parts tariff, we show that joint profit of the industry is not maximised at simultaneous bilateral bargaining equilibria and that below marginal cost pricing in the intermediate goods market arises, when final products are substitutes, and may be welfare improving. When negotiations occurs sequentially, we show, in the two-manufacturers case, that the first manufacturer which enters into negotiations and the retailer may jointly prefer above marginal cost pricing or not, depending on the distribution of bargaining power in the channel. However, the second manufacturer equilibrium wholesale price is set below marginal cost.
|Date of creation:||2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.org
More information through EDIRC
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.:
- Irmen, Andreas, 1997.
"Note on duopolistic vertical restraints,"
European Economic Review,
Elsevier, vol. 41(8), pages 1559-1567, August.
- Andreas IRMEN, 1995. "Note on Duopolistic Vertical Restraints," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9507, Université de Lausanne, Faculté des HEC, DEEP.
- Mingxia Zhang, 1997. "The Effects of Imperfect Competition on the Size and Distribution of Research Benefits," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1252-1265.
- McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March.
- Stephen F. Hamilton & David Sunding, 1998. "Returns to Public Investments in Agriculture with Imperfect Downstream Competition," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 830-838.
- Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
- Stephen F. Hamilton & David L. Sunding, 1997. "The Effect of Farm Supply Shifts on Concentration and Market Power in the Food Processing Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 524-531.
When requesting a correction, please mention this item's handle: RePEc:ags:aaea03:22044. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.