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Endogenous Contracts Under Bargaining in Competing Vertical Chains

Author

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  • Vettas, Nikolaos
  • Petrakis, Emmanuel
  • Milliou, Chrysovalantou

Abstract

We investigate the endogenous determination of contracts in competing vertical chains where upstream and downstream firms bargain first over the type of contract and then over the contract terms. Upstream firms always opt for non-linear contracts, which specify the input quantity and its total price. Downstream firms also opt for non-linear contracts, unless their bargaining power is low, in which case they prefer wholesale price contracts. While welfare is maximized under two-part tariffs, these are dominated in equilibrium by non-linear contracts.

Suggested Citation

  • 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.
    • Handle: RePEc:cpr:ceprdp:3976
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    References listed on IDEAS

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    Cited by:

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    2. Yonezawa, Koichi & Gomez, Miguel I. & Richards, Timothy J., 2018. "The Robinson-Patman Act and Vertical Relationships in Food Retailing," 2018 Annual Meeting, August 5-7, Washington, D.C. 274204, Agricultural and Applied Economics Association.
    3. Symeonidis, George, 2010. "Downstream merger and welfare in a bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 230-243, May.
    4. Symeonidis, George, 2010. "Downstream merger and welfare in a bilateral oligopoly," International Journal of Industrial Organization, Elsevier, vol. 28(3), pages 230-243, May.
    5. Chrysovalantou Milliou & Joel Sandonis, 2020. "Vertical foreign direct investment: Make, buy, and sell," Review of International Economics, Wiley Blackwell, vol. 28(3), pages 884-912, August.
    6. Lin, Ping, 2006. "Strategic spin-offs of input divisions," European Economic Review, Elsevier, vol. 50(4), pages 977-993, May.
    7. George Symeonidis, 2008. "Downstream Competition, Bargaining, and Welfare," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 247-270, March.
    8. George Symeonidis, 2008. "Downstream Competition, Bargaining, and Welfare," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 247-270, 03.
    9. Vey Wang & Chung-Hui Lai & Lung-Sheng Lee & Shih-Wen Hu, 2010. "Franchise fee, contract bargaining, and economic growth," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 19(6), pages 539-552.
    10. ., 2012. "Models of Negotiation and Bargaining in Health Care," Chapters, in: Andrew M. Jones (ed.), The Elgar Companion to Health Economics, Second Edition, chapter 21, Edward Elgar Publishing.
    11. Lin, Ping & Saggi, Kamal, 2007. "Multinational firms, exclusivity, and backward linkages," Journal of International Economics, Elsevier, vol. 71(1), pages 206-220, March.

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    More about this item

    Keywords

    Vertical chains; Strategic contracting; Bargaining; Two-part tariffs; Non-linear contracts; Wholesale prices;
    All these keywords.

    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
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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