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Downstream mode of competition with upstream market power

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  • Manasakis, Constantine
  • Vlassis, Minas

Abstract

In a two-tier oligopoly, where the downstream firms are locked in pair-wise exclusive relationships with their upstream input suppliers, the equilibrium mode of competition in the downstream market is endogenously determined as a renegotiation-proof contract signed between each downstream firm and its exclusive upstream input supplier. We find that the upstream-downstream exclusive relationships credibly sustain the Cournot (Bertrand) mode of competition in the downstream market, when the goods are substitutes (complements). In contrast to previous studies, this result holds irrespectively of the degree of product differentiation and the distribution of bargaining power between the upstream and the downstream firm, over the pairspecific input price.

Suggested Citation

  • Manasakis, Constantine & Vlassis, Minas, 2013. "Downstream mode of competition with upstream market power," DICE Discussion Papers 118, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:118
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    2. Domenico Buccella, 2015. "Unionized duopoly, market competition with differentiated products, and welfare," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(4), pages 455-473, December.
    3. Alipranti, Maria & Petrakis, Emmanuel, 2020. "Fixed fee discounts and Bertrand competition in vertically related markets," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 19-26.
    4. Dusanee Kesavayuth & Vasileios Zikos, 2016. "Price or Quantity? A New Irrelevance Result for Mixed Markets," Australian Economic Papers, Wiley Blackwell, vol. 55(1), pages 29-42, March.
    5. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2014. "Price vs. quantity competition in a vertically related market," Economics Letters, Elsevier, vol. 124(1), pages 122-126.
    6. Fanti, Luciano, 2016. "Social welfare and cross-ownership in a vertical industry: When the mode of competition matters for antitrust policy," Japan and the World Economy, Elsevier, vol. 37, pages 8-16.
    7. Jochen Manegold, 2016. "Stackelberg Competition among Intermediaries in a Differentiated Duopoly with Product Innovation," Working Papers CIE 98, Paderborn University, CIE Center for International Economics.
    8. Andre Jungmittag, 2018. "The Direct and Indirect Effects of Product Market Regulations in the Retail Trade Sector," JRC Working Papers JRC112222, Joint Research Centre (Seville site).
    9. Michael Polemis & Konstantinos Eleftheriou, 2018. "To Regulate Or To Deregulate? The Role Of Downstream Competition In Upstream Monopoly Vertically Linked Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 70(1), pages 51-63, January.
    10. Luciano Fanti & Marcella Scrimitore, 2017. "How to compete? Cournot vs. Bertrand in a vertical structure with an integrated input supplier," Discussion Papers 2017/221, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    11. Sonja Brangewitz & Jochen Manegold, 2015. "Competition and Product Innovation of Intermediaries in a Differentiated Duopoly," Working Papers CIE 90, Paderborn University, CIE Center for International Economics.
    12. Elias Asproudis & Eleftherios Filippiadis, 2021. "Environmental Technological Choice in a Cournot-Bertrand Model," Journal of Industry, Competition and Trade, Springer, vol. 21(1), pages 43-58, March.
    13. Nicola Meccheri, 2021. "Biased managers in vertically related markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 724-736, April.
    14. Nicola Meccheri, 2019. "Biased managers in a vertical structure," Working Paper series 19-12, Rimini Centre for Economic Analysis.
    15. Olga Rozanova, 2017. "The possibility to renegotiate the contracts and the equilibrium mode of competition in vertically related markets," Economics Bulletin, AccessEcon, vol. 37(3), pages 1573-1580.
    16. Luciano Fanti & Nicola Meccheri, 2015. "On the Cournot–Bertrand Profit Differential and the Structure of Unionisation in a Managerial Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 266-287, December.

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    More about this item

    Keywords

    Oligopoly; Vertical relations; Wholesale prices; Equilibrium mode of competition;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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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