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On Intrabrand and Interbrand Competition: The Strategic Role of Fees and Royalties

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  • Saggi, Kamal
  • Vettas, Nikolaos

Abstract

We examine oligopolistic markets with both intrabrand and interbrand competition. We characterize equilibrium contracts involving a royalty (or wholesale price) and a fee when each upstream firm contracts with multiple downstream firms. Royalties control competition between own downstream firms at the expense of making them passive against rivals. When we endogenize the number of downstream firms, we find that each upstream firm chooses to have only one downstream firm. This result is in sharp contrast to previous literature where competitors benefit by having a larger number of independent downstream firms under only fixed fee payments. We discuss how allowing for contracts that involve both fees and per-unit payments dramatically alters the strategic incentives.

Suggested Citation

  • Saggi, Kamal & Vettas, Nikolaos, 1999. "On Intrabrand and Interbrand Competition: The Strategic Role of Fees and Royalties," CEPR Discussion Papers 2110, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2110
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    Cited by:

    1. Antonio Tesoriere, 2021. "Drastic innovation reduces firms’ incentives to create divisions," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(3), pages 971-994, October.
    2. Martino De Stefano & Marc Rysman, 2010. "Competition Policy as Strategic Trade with Differentiated Products," Review of International Economics, Wiley Blackwell, vol. 18(4), pages 758-771, September.
    3. Michèle Breton & Lucia Sbragia, 2021. "Intra-brand competition in a differentiated oligopoly," Journal of Economics, Springer, vol. 132(1), pages 1-40, January.
    4. Heywood, John S. & Li, Jianpei & Ye, Guangliang, 2014. "Per unit vs. ad valorem royalties under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 38-46.
    5. Awi Federgruen & Ming Hu, 2016. "Technical Note—Sequential Multiproduct Price Competition in Supply Chain Networks," Operations Research, INFORMS, vol. 64(1), pages 135-149, February.
    6. Michael Polemis & Konstantinos Eleftheriou, 2018. "To Regulate Or To Deregulate? The Role Of Downstream Competition In Upstream Monopoly Vertically Linked Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 70(1), pages 51-63, January.
    7. Griva, Krina & Vettas, Nikolaos, 2015. "On two-part tariff competition in a homogeneous product duopoly," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 30-41.
    8. Ramon Fauli-Oller, 2024. "Divisionalization and symmetric product differentiation," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(2), pages 211-217, December.
    9. Eichberger, Jürgen & Mueller-Langer, Frank, 2012. "On the Welfare Effects of Exclusive Distribution Arrangements," MPRA Paper 39691, University Library of Munich, Germany.
    10. Rafael MONER-COLONQUES & José J. SEMPERE-MONERRIS & Amparo URBANO, 2002. "The Manufacturers’ Choice of Brand Policy under Successive Duopoly," LIDAM Discussion Papers IRES 2002003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    11. Vettas, Nikolaos & Petrakis, Emmanuel & Milliou, Chrysovalantou, 2003. "Endogenous Contracts Under Bargaining in Competing Vertical Chains," CEPR Discussion Papers 3976, C.E.P.R. Discussion Papers.
    12. Kamal Saggi & Nikolaos Vettas, 2023. "On intrabrand and interbrand competition: The strategic role of fees and royalties," World Scientific Book Chapters, in: Kamal Saggi (ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, chapter 30, pages 659-670, World Scientific Publishing Co. Pte. Ltd..
    13. Hui-Ling Chung & Yan-Shu Lin & Jin-Li Hu, 2013. "Bundling strategy and product differentiation," Journal of Economics, Springer, vol. 108(3), pages 207-229, April.
    14. DongJoon Lee & Kangsik Choi & Kyuchan Hwang, 2017. "First-Mover and Second-Mover Advantages in a Bilateral Duopoly," Korean Economic Review, Korean Economic Association, vol. 33, pages 35-53.
    15. Konishi, Hideo & Sandfort, Michael T., 2003. "Anchor stores," Journal of Urban Economics, Elsevier, vol. 53(3), pages 413-435, May.

    More about this item

    Keywords

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    JEL classification:

    • 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
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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