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Auctions vs. negotiations 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 - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes)

  • Emmanuel Petrakis

    (UOC - University of Crete [Heraklion], UC3M - Universidad Carlos III de Madrid = University of Carlos III of Madrid)

Abstract

In a two-tier industry with bottleneck upstream and two downstream firms producing vertically differentiated goods, we identify conditions under which the upstream supplier chooses exclusive or non-exclusive negotiations, or an English auction to sell its essential input. Auctioning off a two-part tariff contract is optimal for the supplier when its bargaining power is low and the final goods are not too differentiated. Otherwise, the supplier enters into exclusive or non-exclusive negotiations with the downstream firm(s). Finally, in contrast to previous findings, an auction is never welfare superior to negotiations.

Suggested Citation

  • Emanuele Bacchiega & Olivier Bonroy & Emmanuel Petrakis, 2020. "Auctions vs. negotiations in vertically related markets," Post-Print hal-02612764, HAL.
    • Handle: RePEc:hal:journl:hal-02612764
    DOI: 10.1016/j.econlet.2020.109198
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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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