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The reciprocal producers' incentives to prey and the relailers' buying power

Author

Listed:
  • Bergès-Sennou, F.
  • Chambolle, C.

Abstract

In this paper, we analyze how the upstream Bertrand competition is distorted when we take into account repetition of the interactions within a vertical relationship. We argue that, in a two-period setting, a downstream monopsonist may prevent an efficient producer to prey on a less efficient upstream competitor. The reason is the retailer has an incentive to maintain the inefficient producer on the upstream market in order to preserve its second period buying power towards the efficient supplier. We thus point out that there exists an equilibrium where the efficient supplier grants tariff concessions to the monopsonist retailer to become its exlusive supplier and benefits of a monopoly power in the second period. However, there exists another type of equilibrium where te retailer maintain both suppliers in the first period. In this latter case, for high value of future (high), producters make the retailer pay the high price for enjoying manufacturer's competition in the second period : producers realize a first period monopoly profit whereas competing à la Bertrand. ...French Abstract : Dans cet article, les auteurs analysent comment la concurrence amont à la Bertrand est faussée lorsque l'on prend en compte l'aspect répété des interactions dans les relations verticales. Ils prouvent que, dans un jeu à deux périodes, un monopsoniste en aval préfère parfois empêcher que le producteur le plus efficace ne s'attaque au producteur moins efficace. La raison est que le détaillant trouve un intérêt à maintenir le producteur inefficace sur le marché amont afin de préserver la concurrence en seconde période. Ils montrent donc qu'il existe un équilibre oû le producteur efficace accorde des concessions tarifaires au détaillant pour devenir son fournisseur exclusif, bénéficiant alors d'un pouvoir de monopole en seconde période. Cependant, il existe aussi un autre type d'équilibre oû le détaillant maintient les deux producteurs en première période. Dans un tel cas, pour des valeurs élevées du taux d'escompte, les producteurs font payer le prix fort au distributeur pour son opportunisme à vouloir faire jouer la concurrence en amont en seconde période. Les producteurs réalisent alors un profit de monopole en première période alors qu'ils se concurrencent à la Bertand.

Suggested Citation

  • Bergès-Sennou, F. & Chambolle, C., 2005. "The reciprocal producers' incentives to prey and the relailers' buying power," Economics Working Paper Archive (Toulouse) 200508, French Institute for Agronomy Research (INRA), Economics Laboratory in Toulouse (ESR Toulouse).
  • Handle: RePEc:rea:inrawp:200508
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    File URL: http://www.toulouse.inra.fr/centre/esr/wpRePEc/ber200508.pdf
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    Keywords

    BUYING POWER; PREDATORY PRICING; BERTRAND COMPETITION ; COMMERCE DE DETAIL; DISTRIBUTION; CONCENTRATION VERTICALE; CONCURRENCE ECONOMIQUE; MONOPOLE; TAUX D'ESCOMPTE ; BERTRAND;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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