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Equilibrium downstream mark-up and upstream free entry

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Abstract

We consider a successive Cournot oligopoly model where firms freely enter into the upstream market. We show that, under specific conditions, a higher number of downstream firms can lead to a higher mark-up in the downstream market. Although downstream market power may increase, consumer prices still decrease with the number of downstream firms implying that higher market power does not necessarily imply lower consumer surplus.

Suggested Citation

  • Ioannis N. Pinopoulos, 2014. "Equilibrium downstream mark-up and upstream free entry," Discussion Paper Series 2014_02, Department of Economics, University of Macedonia, revised Sep 2014.
    • Handle: RePEc:mcd:mcddps:2014_02
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    1. Roman Inderst & Tommaso M. Valletti, 2007. "Market Analysis In The Presence Of Indirect Constraints And Captive Sales," Journal of Competition Law and Economics, Oxford University Press, vol. 3(2), pages 203-231.
    2. Matsushima, Noriaki, 2006. "Industry profits and free entry in input markets," Economics Letters, Elsevier, vol. 93(3), pages 329-336, December.
    3. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(2), pages 345-356.
    4. Roman Inderst & Tommaso Valletti, 2009. "Indirect versus Direct Constraints in Markets with Vertical Integration," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(3), pages 527-546, September.
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    More about this item

    Keywords

    Vertical relations; Cournot competition; Free entry; Market Power.;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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