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Equilibrium strategic overbuying

Author

Listed:
  • Éric Avenel

    (University of Rennes 1 - CREM-CNRS, France)

  • Clémence Christin

    (Düsseldorf Institute for Competition Economics, Deutschland)

Abstract

We consider two firms competing both to sell their output and purchase their input from an upstream firm, to which they offer non-linear contracts. Firms may engage in strategic overbuying, purchasing more of the input when the supplier is capacity constrained than when it is not in order to exclude their competitor from the final market. Warehousing is a special case in which a downstream firm purchases more input than it uses and disposes of the rest. We show that both types of overbuying happen in equilibrium. The welfare analysis leads to ambiguous conclusions.

Suggested Citation

  • Éric Avenel & Clémence Christin, 2011. "Equilibrium strategic overbuying," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201205, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  • Handle: RePEc:tut:cremwp:201205
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    File URL: https://crem-doc.univ-rennes1.fr/wp/2012/201205.pdf
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    References listed on IDEAS

    as
    1. Jean J. Gabszewicz & Skerdilajda Zanaj, 2008. "Upstream Market Foreclosure," Bulletin of Economic Research, Wiley Blackwell, vol. 60(1), pages 13-26, January.
    2. Clémence Christin, 2013. "Entry Deterrence Through Cooperative R&D Over-Investment," Recherches économiques de Louvain, De Boeck Université, vol. 79(2), pages 5-26.
    3. Marie-Laure Allain & Saïd Souam, 2004. "Concentration horizontale et relations verticales," Working Papers hal-00242914, HAL.
    4. Stahl, Dale O, II, 1988. "Bertrand Competition for Inputs and Walrasian Outcomes," American Economic Review, American Economic Association, vol. 78(1), pages 189-201, March.
    5. Michael A. Salinger, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 103(2), pages 345-356.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    entry deterrence; overbuying; vertical contracting;

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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