IDEAS home Printed from https://ideas.repec.org/a/bpj/bejtec/v19y2019i1p6n11.html
   My bibliography  Save this article

Vertical Contract and Competition Intensity in Hotelling’s Model

Author

Listed:
  • Wang Xingtang

    (Institute of Industrial Economics, Jinan University, Guangzhou, China)

  • Li Jie

    (Institute of Industrial Organization and Regulation, Institute of Industrial Economics, Jinan University, Guangzhou, Guangdong, China)

  • Wang Leonard F.S.

    (Wenlan School of Business, Zhongnan University of Economics and Law, Wuhan, China)

Abstract

This paper explores the impact of intensity of rivalry in downstream market on the equilibrium locations of the downstream firms under a vertical market structure á la Hotelling. We find that: (i) the presence of upstream firms softens the spatial competition in downstream market; (ii) minimum differentiation cannot be achieved as the equilibrium outcome and the equilibrium product differentiation is insufficient relative to socially optimum; (iii) social welfare is higher with a higher weight attached to intensity of rivalry, which is different from the non-monotonic relationship under the horizontal market case; (iv) the equilibrium product differentiation is independent of bargaining power under the two-part tariff contracts, which is different from Brekke and Straume (2004) under linear pricing.

Suggested Citation

  • Wang Xingtang & Li Jie & Wang Leonard F.S., 2019. "Vertical Contract and Competition Intensity in Hotelling’s Model," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(1), pages 1-6, January.
    • Handle: RePEc:bpj:bejtec:v:19:y:2019:i:1:p:6:n:11
    DOI: 10.1515/bejte-2017-0048
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/bejte-2017-0048
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/bejte-2017-0048?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gu, Yiquan & Wenzel, Tobias, 2009. "A note on the excess entry theorem in spatial models with elastic demand," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 567-571, September.
    2. Anderson, Simon P. & de Palma, Andre, 2000. "From local to global competition," European Economic Review, Elsevier, vol. 44(3), pages 423-448, March.
    3. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "The Value of Trade Agreements in the Presence of Political Pressures," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 574-601, June.
    4. Matsushima, Noriaki, 2004. "Technology of upstream firms and equilibrium product differentiation," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1091-1114, November.
    5. Toshihiro Matsumura & Makoto Okamura, 2015. "Competition and privatization policies revisited: the payoff interdependence approach," Journal of Economics, Springer, vol. 116(2), pages 137-150, October.
    6. Kou, Zonglai & Zhou, Min, 2015. "Hotelling’s competition with relative performance evaluation," Economics Letters, Elsevier, vol. 130(C), pages 69-71.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Javier Elizalde & Markus Kinateder & Ignacio Rodríguez-Carreño, 2015. "Entry regulation, firm’s behaviour and social welfare," European Journal of Law and Economics, Springer, vol. 40(1), pages 13-31, August.
    2. Gu Yiquan & Wenzel Tobias, 2012. "Price-Dependent Demand in Spatial Models," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-26, March.
    3. Tong Zhang & Yixue Huo & Xin Zhang & Jie Shuai, 2019. "Endogenous third-degree price discrimination in Hotelling model with elastic demand," Journal of Economics, Springer, vol. 127(2), pages 125-145, July.
    4. Jie Li & Xianhai Huang, 2013. "When to Initiate an International Vertical Merger? The Impact of Negative Demand Shock," The World Economy, Wiley Blackwell, vol. 36(7), pages 843-860, July.
    5. Esteves, Rosa-Branca & Shuai, Jie, 2022. "Personalized pricing with a price sensitive demand," Economics Letters, Elsevier, vol. 213(C).
    6. González-Maestre, Miguel & Granero, Lluís M., 2020. "Excessive vs. insufficient entry in spatial models: When product design and market size matter," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 27-35.
    7. Gu, Yiquan & Wenzel, Tobias, 2009. "Product variety, price elasticity of demand and fixed cost in spatial models," FAU Discussion Papers in Economics 03/2009, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    8. Youping Li & Jie Shuai, 2018. "A Welfare Analysis of Location Space Constraints with Vertically Separated Sellers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 52(1), pages 161-177, February.
    9. repec:zbw:rwirep:0092 is not listed on IDEAS
    10. Esteves, Rosa-Branca & Reggiani, Carlo, 2014. "Elasticity of demand and behaviour-based price discrimination," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 46-56.
    11. Yiquan Gu & Tobias Wenzel, 2009. "Product Variety, Price Elasticity of Demand and Fixed Cost in Spatial Models," Ruhr Economic Papers 0092, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    12. Conconi, Paola & Perroni, Carlo, 2009. "Do credible domestic institutions promote credible international agreements?," Journal of International Economics, Elsevier, vol. 79(1), pages 160-170, September.
    13. Chen, Natalie & Juvenal, Luciana, 2022. "Markups, quality, and trade costs," Journal of International Economics, Elsevier, vol. 137(C).
    14. Joseph Francois & Bernard Hoekman, 2010. "Services Trade and Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 642-692, September.
    15. Rotunno, Lorenzo, 2016. "Political stability and trade agreements: Evidence for ‘endgame FTAs’," European Journal of Political Economy, Elsevier, vol. 45(C), pages 133-148.
    16. Giovanni Maggi & Ralph Ossa, 2020. "Are Trade Agreements Good For You?," NBER Working Papers 27252, National Bureau of Economic Research, Inc.
    17. Kym Anderson, 2005. "On the Virtues of Multilateral Trade Negotiations," The Economic Record, The Economic Society of Australia, vol. 81(255), pages 414-438, December.
    18. Gu, Yiquan & Rasch, Alexander & Wenzel, Tobias, 2022. "Consumer salience and quality provision in (un)regulated public service markets," Regional Science and Urban Economics, Elsevier, vol. 93(C).
    19. Fiorini, Matteo; Lebrand, Mathilde, 2016. "The Political Economy of Services Trade Agreements," Economics Working Papers ECO2016/05, European University Institute.
    20. Cai, Dapeng & Jørgensen, Jan Guldager, 2017. "Mutual Recognition for Sale: International Bargaining over Product Standards," Discussion Papers on Economics 1/2017, University of Southern Denmark, Department of Economics.
    21. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "Tax incidence in differentiated product oligopoly," Journal of Public Economics, Elsevier, vol. 81(2), pages 173-192, August.

    More about this item

    Keywords

    spatial competition; vertical structure; maximum (minimum) differentiation; intensity of rivalry;
    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
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejtec:v:19:y:2019:i:1:p:6:n:11. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.