Working Paper : 2010-03 Downstream Mode of Competition With Upstream Market (original) (raw)

Vertical Contracts as Strategic Commitments

2020

Recent literature has shown that when retailers cannot observe contracts between a manufacturer and their rivals, the manufacturer will be unable to obtain the vertically integrated profit using two-part tariff contracts alone. It has been suggested that vertical restraints, such as RPM and exclusive territories, are observable and thus permit the manufacturer to obtain profits closer to the vertically integrated level. Observability, however, is not sufficient. To serve as a strategic commitment mechanism, a vertical contract must be enforceable as well. We show that the vertical contracts that have been the focus of the recent literature are not self-enforcing but must be externally enforced. We find that in practice the enforceability condition has not been met. This suggests that models which rest on the premise that vertical restraints are strategic commitments do not provide general explanations of these practices .

Vertical Contracts

2005

Contrary to the seminal paper of Horn and Wolinsky (1988), we demonstrate that upstream firms, which sell their products to competing downstream firms, do not al-ways have incentives to merge horizontally. In particular, we show that when bargaining takes place over two-part tariffs, and not over wholesale prices, upstream firms prefer to act as independent suppliers rather than as a monopolist supplier. Moreover, we show that horizontal mergers can be procompetitive, even in the absence of efficiency gains. JEL Classification: L41; L42; L22

Downstream Competition, Exclusive Dealing and Upstream Collusion

2000

This paper analyzes the impact of exclusive dealing contracts on the scope for upstream collusion in a framework with upstream and downstream imperfect compe- tition. We consider a repeated game of vertical contract choice in a double duopoly. We show that exclusive dealing contracts may either facilitate or deter upstream col- lusion, depending on the strength of competition at both

Vertical Contracting when Competition for Orders Precedes Procurement

2007

This paper reverses the standard order between input supply negotiations and downstream competition and assumes that competition for orders takes place prior to procurement of inputs in a vertical chain. It is found that oligopolistically competitive outcomes will result despite the presence of an upstream monopolist. Here, vertical integration is a means by which the monopolist can leverage its market power downstream to the detriment of consumers.