Two Comments on the Industrial Organisation of Vertically Related Markets
This paper first studies the determination of final consumer price when two successive monopolists bargain over the intermediate goods price. Unlike the conventional double marginalisation result which rests on the (implicit) assumption that the upstream firm has all the bargaining power, it is shown that, as the bargaining power shifts from downstream firm to upstream firm, the equilibrium quantity (price) decreases (increases) continuously from the vertically integrated outcome to the conventional double marginalization outcome. This paper next studies the determination of retail and wholesale prices in successive Cournot oligopolies and generalizes the results of Bresnahan and Reiss (1985) on the ratio of retail to wholesale margins in successive monopolies.
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