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Supply Contracts under Partial Forward Ownership

Author

Listed:
  • Hunold, Matthias
  • Schlütter, Frank

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

Abstract

With forward ownership, an upstream supplier internalizes the effect of its supply contracts on the downstream firms, which is so far understood to decrease prices. We show that instead downstream prices generally increase if firms use two-part tariffs. The price-increasing effect of forward ownership occurs with both observable and secret two-part tariffs, albeit for different economic reasons. The results arise under both quantity and price competition as well as for different belief refinements. Partial forward ownership can be more profitable and more harmful for consumers than a full vertical merger between an upstream and a downstream firm.

Suggested Citation

  • Hunold, Matthias & Schlütter, Frank, 2022. "Supply Contracts under Partial Forward Ownership," LIDAM Discussion Papers CORE 2022003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2022003
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    References listed on IDEAS

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    More about this item

    Keywords

    Vertical relations ; minority shareholding ; partial forward ownership;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L8 - Industrial Organization - - Industry Studies: Services

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