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Supplier Fixed Costs and Retail Market Monopolization

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  • Stéphane Caprice
  • Vanessa von Schlippenbach
  • Christian Wey

Abstract

Considering a vertical structure with perfectly competitive upstream firms that deliver a homogenous good to a differentiated retail duopoly, we show that upstream fixed costs may help to monopolize the downstream market. We find that downstream prices increase in upstream firms’ fixed costs when both intra- and interbrand competition exist. Our findings contradict the common wisdom that fixed costs do not affect market outcomes.

Suggested Citation

  • Stéphane Caprice & Vanessa von Schlippenbach & Christian Wey, 2014. "Supplier Fixed Costs and Retail Market Monopolization," Discussion Papers of DIW Berlin 1408, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1408
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    Cited by:

    1. Dipankar Das, 2019. "Multilayer of Suppliers Fixed Costs and Spatial Competition in the Upstream Market as a Source of Retailers Buying Power," Studies in Microeconomics, , vol. 7(2), pages 210-226, December.

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    More about this item

    Keywords

    Fixed costs; vertical contracting; monopolization;
    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
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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