Work

Competition with exclusive contracts in vertically related markets: An equilibrium non-existence result

Year: 2024

Type: article

Abstract: I study a model in which two upstream firms compete to supply a homogeneous input to two downstream firms selling differentiated products. Upstream firms offer exclusive, discriminatory, public, two-part tariff contracts to the downstream firms. I show that, under very general conditions, this game does not have a pure-strategy subgame-perfect equilibrium. The intuition is that variable parts in such an equilibrium would have to be pairwise-stable; however, with pairwise-stable variable parts, downstream competitive externalities are not internalized, implying that upstream firms can profitably deviate. I contrast this non-existence result with earlier papers that found equilibria in related models.

Source: International Journal of Industrial Organization

DOI: 10.1016/j.ijindorg.2024.103097

Author: Nicolas Schutz

Institution: University of Mannheim

Language: English

Topic: Merger and Competition Analysis

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,190

Funder: Deutsche Forschungsgemeinschaft