Competition between branded and nonbranded firms and its impact on welfare

Abstract

We examine a quantity competition among branded and nonbranded firms. The market comprises two consumer segments: one purchases only branded products (the high-end market), while the other segment's consumers purchase less expensive products (the low-end market). When branded firms take actions sequentially, we show that the branded leader has an incentive to restrict its quantity to avoid entering the low-end market. As the follower recognizes this incentive, it can restrict the leader by implementing a quantity constraint, which is affected by the number of nonbranded firms. We find that both the branded leader and follower could benefit from the nonbranded firms and that the leader prefers to have more nonbranded firms in the market than the follower does. Furthermore, we show that the free entry of nonbranded firms could negatively affect total surplus as well as consumer surplus even without any costs, because of the premium pricing of branded products.

The Impacts of Suppliers and Mutual Outsourcing on Organizational Forms

“…In our model, there are two forces that influence incentive contracts: (i) the downstream firms' input prices in mutual outsourcing and (ii) the supplier's input price. In the fourth stage, when the decision-8 Several papers also show asymmetric managerial structures in different contexts (Vroom, 2006;Mujumdar and Pal, 2007;Löffler, 2008, 2012;Pan et al, 2020). We explain the difference between those papers and ours in Section 2.…”

“…Even if they also assume that a delegating firm incurs a fixed operational cost to inspect the manager's performance, as in Basu (1995) and our paper, an asymmetric managerial structure does not appear. 12 Some theoretical studies have investigated how strategic organizational design affects firm asymmetry (Vroom, 2006;Mujumdar and Pal, 2007;Löffler, 2008, 2012;Pan et al, 2020). 13 The stream of this research interprets the organizational design as a commitment device for firms' output decisions.…”

“…Pan (2018Pan ( , 2020 are applications of the demand system inIshibashi and Matsushima (2009) to the problems of endogenous timing and firm entry, respectively.…”

The impacts of suppliers and mutual outsourcing on organizational forms

“…Pan (2018Pan ( , 2020 are applications of the inverse demand function inIshibashi and Matsushima (2009) to the problems of endogenous timing and firm entry, respectively.…”