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Predatory accomodation in vertical contracting with externalities

Author

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  • Bontems, P.
  • Bouamra-Mechemache, Z.

Abstract

We analyse vertical contracts between manufacturers and a common retailer in a channel including the uptstream input market. The oligopsonistic behavior of manufacturers on the ustream market provides a new explanation for predatory accomodation. With two-parts tariff, we show that joint profit of the industry is not maximised at simultaneous intermediate good market, when final products are substitutes, ant that it may be welfare negotiations and the retailer may jointly prefer above marginal cost pricing or not, depending on the distribution of bargaining power in the channel. However, the second manufacturer equilibrium wholesale price is set below marginal cost. ...French Abstract : Les auteurs analysent les contrats verticaux entre des producteurs et un distributeur commun dans une filière incluant un marché amont pour l'approvisionnement en input. Le comportement oligopolistique des producteurs sur le marché amont fournit une nouvelle explication pour une tarification au-dessous du coût marginal (predaroty accomodation). Avec des tarifs binômes, les auteurs montrent que le profit joint de l'industrie n'est pas maximisé à l'équilibre d'un jeu simultané de négociations bilatérales. Ils montrent également que les biens intermédiaires sont tarifés au-dessous du coût marginal lorsque les produits finaux sont substituts et que cette tarification peut avoir des effets positifs sur le bien-être. Avec un jeu de négociations séquentielles, les auteurs montrent que le producteur qui est le premier à négocier et le distributeur préfèrent de façon jointe une tarification au-dessus du coût marginal ou non selon la distribution du pouvoir de marchandage dans la filière. Cependant, le prix de gros à l'équilibre du second producteur est établi au-dessous du coût marginal.

Suggested Citation

  • Bontems, P. & Bouamra-Mechemache, Z., 2004. "Predatory accomodation in vertical contracting with externalities," Economics Working Paper Archive (Toulouse) 200402, French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse).
  • Handle: RePEc:rea:inrawp:200402
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    File URL: http://www.toulouse.inra.fr/centre/esr/wpRePEc/bon200402.pdf
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    References listed on IDEAS

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    1. Stephen F. Hamilton & David Sunding, 1998. "Returns to Public Investments in Agriculture with Imperfect Downstream Competition," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 830-838.
    2. Stephen F. Hamilton & David L. Sunding, 1997. "The Effect of Farm Supply Shifts on Concentration and Market Power in the Food Processing Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 524-531.
    3. Irmen, Andreas, 1997. "Note on duopolistic vertical restraints," European Economic Review, Elsevier, vol. 41(8), pages 1559-1567, August.
    4. Joyce J. Wann & Sexton Richard J., 1992. "Imperfect Competition in Multiproduct Food Industries with Application to Pear Processing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(4), pages 980-990.
    5. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
    6. Mingxia Zhang, 1997. "The Effects of Imperfect Competition on the Size and Distribution of Research Benefits," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1252-1265.
    7. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
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    Cited by:

    1. Claire Chambolle & Sylvaine Poret, 2009. "Fair Trade Contracts for Some, an Insurance for Others," Working Papers hal-00367500, HAL.
    2. Chambolle, Claire & Poret, Sylvaine, 2008. "Guaranteed Minimum Price Contracts for Some, an Insurance for Others?," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44134, European Association of Agricultural Economists.

    More about this item

    Keywords

    BARGAINING; VERTICAL RELATIONSHIPS; CONTRACTS; OLIGOPSONY; MARKET POWER; PREDATORY PRICING ; THEORIE DES CONTRATS; OLIGOPOLE; COUT MARGINAL; PRIX;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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