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A note on forward contracts in leader-follower games

Author

Listed:
  • Monica Bonacina

    (IEFE, Bocconi University)

  • Anna Creti

    (IEFE, Bocconi University and EconomiX, Université Paris Ouest)

Abstract

This note shows that the pro-competitive effect of pre-commitments is robust to Stackelberg-like market structures. Although our results are in line with Allaz and Vila (1993), the two equilibria differ substantially. Sequential interactions foster a monopolization of the contract market and a redistribution of market shares - and hence of profits - towards the follower. Offsetting strategies in the sense of Bain (1949a) can then occur. The use of forward sales to exclude the rival in the output market requires the leader to have a strategic advantage in the contract market, as well as some conditions on the technological structure of the industry.

Suggested Citation

  • Monica Bonacina & Anna Creti, 2010. "A note on forward contracts in leader-follower games," Economics Bulletin, AccessEcon, vol. 30(2), pages 1539-1547.
    • Handle: RePEc:ebl:ecbull:eb-10-00035
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    File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I2-P141.pdf
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    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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