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Contract contingency in vertically related markets

Author

Listed:
  • Emanuele Bacchiega

    (UNIBO - Alma Mater Studiorum Università di Bologna = University of Bologna)

  • Olivier Bonroy

    (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA [2016-2019] - Université Grenoble Alpes [2016-2019])

  • Emmanuel Petrakis

    (UOC - University of Crete [Heraklion], Department of Economics)

Abstract

Over the last years, courts are increasingly inclined to consider pre-contractual arrangements as binding contracts, endowing them with commitment value that can be used strategically by the party that proposes them. We study the optimal pre-contractual arrangement offers of an upstream monopolist producing an essential input that may sell to two vertically differentiated downstream firms. These arrangements concern the exclusivity and the contingency of the contracts to be signed. Once the pre-contractual arrangements have been determined, the terms of the contracts are negotiated between the upstream supplier and the downstream firm(s). The distribution of bargaining power during the contract terms negotiations is the main driving force of the monopolist's choices. A powerful supplier always opts for an exclusive contract. By contrast, a weaker supplier offers non exclusive contracts and makes each of them contingent or non-contingent such as to guarantee the most favorable outside option in its negotiations.

Suggested Citation

  • Emanuele Bacchiega & Olivier Bonroy & Emmanuel Petrakis, 2018. "Contract contingency in vertically related markets," Post-Print hal-01767805, HAL.
    • Handle: RePEc:hal:journl:hal-01767805
    DOI: 10.1111/jems.12252
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    Citations

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    Cited by:

    1. Bacchiega, Emanuele & Bonroy, Olivier & Petrakis, Emmanuel, 2020. "Auctions vs. negotiations in vertically related markets," Economics Letters, Elsevier, vol. 192(C).
    2. Sai Bravo & Carole Haritchabalet, 2021. "Certification of low-carbon hydrogen in the transport market," Working Papers hal-03371277, HAL.
    3. Alban Thomas & Claire Lamine & Benjamin Allès & Yuna Chiffoleau & Antoine Doré & Sophie Dubuisson-Quellier & Mourad Hannachi, 2020. "The key roles of economic and social organization and producer and consumer behaviour towards a health-agriculture-food-environment nexus: recent advances and future prospects," Review of Agricultural, Food and Environmental Studies, Springer, vol. 101(1), pages 23-46, October.
    4. Sai Bravo & Carole Haritchabalet, 2021. "Certification of low-carbon hydrogen in the transport market," Working papers of Transitions Energétiques et Environnementales (TREE) hal-03371277, HAL.
    5. Chung-Hui Chou, 2023. "An analysis of managerial delegation in a market with vertically-integrated producer owning an essential input monopolistically," Review of Economic Design, Springer;Society for Economic Design, vol. 27(1), pages 247-265, February.
    6. Chrysovalantou Milliou & Apostolis Pavlou, 2020. "Foreign direct investment in vertically related markets," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 284-320, February.
    7. Noriaki Matsushima & Shohei Yoshida, 2022. "The countervailing power hypothesis and contingent contracts," ISER Discussion Paper 1191, Institute of Social and Economic Research, The University of Osaka.
    8. Alipranti, Maria & Petrakis, Emmanuel & Skartados, Panagiotis, 2022. "On the pro-competitive effects of passive partial backward ownership," Economics Letters, Elsevier, vol. 213(C).

    More about this item

    Keywords

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    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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