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Price vs. Quantity Competition in a Vertically Related Market Revisited

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  • Debasmita Basak
  • Arijit Mukherjee

Abstract

In a recent paper, Alipranti et al. (2014, Price vs. quantity competition in a vertically related market, Economics Letters, 124: 122-126) show that in a vertically related market Cournot competition yields higher social welfare compared to Bertrand competition if the upstream firm subsidises the quantity setting downstream firm’s production via negative wholesale input prices. However, the assumption of negative input prices is not economically viable as it would encourage the downstream firms to buy an unbounded amount of inputs knowing that the upstream firm would pay the downstream firms for each unit of input they purchase. We show that the welfare ranking may be reversed once we introduce a nonnegativity constraint on the input price.

Suggested Citation

  • Debasmita Basak & Arijit Mukherjee, 2016. "Price vs. Quantity Competition in a Vertically Related Market Revisited," CESifo Working Paper Series 6222, CESifo.
    • Handle: RePEc:ces:ceswps:_6222
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    References listed on IDEAS

    as
    1. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    2. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2014. "Price vs. quantity competition in a vertically related market," Economics Letters, Elsevier, vol. 124(1), pages 122-126.
    3. Basak, Debasmita & Mukherjee, Arijit, 2017. "Price vs. quantity competition in a vertically related market revisited," Economics Letters, Elsevier, vol. 153(C), pages 12-14.
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    Citations

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    Cited by:

    1. Joachim Heinzel & Simon Hoof, 2020. "Oligopolistic Upstream Competition with Differentiated Inputs," Working Papers CIE 129, Paderborn University, CIE Center for International Economics.
    2. Wang, Xingtang, 2022. "Input price discrimination, pricing contract and social welfare," Mathematical Social Sciences, Elsevier, vol. 119(C), pages 91-96.
    3. Wang, Xingtang & Wang, Leonard F.S., 2021. "Vertical product differentiation, managerial delegation and social welfare in a vertically-related market," Mathematical Social Sciences, Elsevier, vol. 113(C), pages 149-159.
    4. Basak, Debasmita & Mukherjee, Arijit, 2017. "Price vs. quantity competition in a vertically related market revisited," Economics Letters, Elsevier, vol. 153(C), pages 12-14.
    5. Ismail Saglam, 2023. "Centralized bargaining with pre‐donation in a vertically related industry," Manchester School, University of Manchester, vol. 91(3), pages 233-259, June.
    6. Prasun Bhattacharjee & Biswajit Mandal & Ravi Radhakrishnan, 2022. "Informal input sector and its impact on output market competitiveness," Indian Economic Review, Springer, vol. 57(2), pages 553-564, December.
    7. Alipranti, Maria & Petrakis, Emmanuel, 2020. "Fixed fee discounts and Bertrand competition in vertically related markets," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 19-26.

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    More about this item

    Keywords

    bargaining; Bertrand; Cournot; two-part tariffs; vertical pricing; welfare;
    All these keywords.

    JEL classification:

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

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