Price vs. Quantity Competition in a Vertically Related Market Revisited

Basak, Debasmita; Mukherjee, Arijit

doi:10.2139/ssrn.2898152

Cited by 1 publication

(1 citation statement)

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“…2 Alipranti et al (2014) showed that when a two-part pricing contract is determined by decentralized bargaining, Cournot competition in the downstream market yields higher consumer surplus and social welfare than Bertrand competition. This result was proven to be reversed if there is a non-negativity constraint in input prices (Basak and Mukherjee, 2017) or if retailers can engage in demand-enhancing investment (Liu and Wang, 2022). Basak and Wang (2016) further showed that if a two-part pricing contract is determined by centralized bargaining, then Bertrand competition becomes the equilibrium mode of competition when the strategic variables in the final goods market are endogenized.…”

Section: Introductionmentioning

confidence: 99%

Centralized bargaining with pre‐donation in a vertically related industry

Sağlam

2023

The Manchester School

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This paper studies the incentives for, and the welfare effects of, pre-donation in a vertically related industry where two downstream firms that produce a homogenous good jointly bargain, using the generalized Nash rule, with an upstream firm over a linear input price before they engage in Cournot competition. We theoretically show that the downstream industry has no incentive to make any pre-donation and this is irrespective of its bargaining power. We also show computationally that (i) the upstream firm finds to make unilateral pre-donation optimal if and only if its bargaining power is sufficiently small and (ii) its optimal pre-donation (whenever positive) always yields Pareto welfare gains.

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Section: Introductionmentioning

confidence: 99%