IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v138y2016icp53-56.html
   My bibliography  Save this article

Endogenous choice of price or quantity contract and the implications of two-part-tariff in a vertical structure

Author

Listed:
  • Basak, Debasmita
  • Wang, Leonard F.S.

Abstract

We re-investigate the endogenous choice of price (Bertrand) and quantity (Cournot) contract in the presence of a vertically related upstream market for input. We find that choosing price contract is the dominant strategy for downstream firms when the two-part-tariff pricing contract is determined through centralised Nash bargaining. We further show that the level of social welfare is the same regardless of the mode of product market competition (i.e., Bertrand or Cournot).

Suggested Citation

  • Basak, Debasmita & Wang, Leonard F.S., 2016. "Endogenous choice of price or quantity contract and the implications of two-part-tariff in a vertical structure," Economics Letters, Elsevier, vol. 138(C), pages 53-56.
    • Handle: RePEc:eee:ecolet:v:138:y:2016:i:c:p:53-56
    DOI: 10.1016/j.econlet.2015.11.026
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176515004929
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2015.11.026?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. Lopez, Monica Correa & Naylor, Robin A., 2004. "The Cournot-Bertrand profit differential: A reversal result in a differentiated duopoly with wage bargaining," European Economic Review, Elsevier, vol. 48(3), pages 681-696, June.
    2. Danthine, Jean-Pierre & Hunt, Jennifer, 1994. "Wage Bargaining Structure, Employment and Economic Integration," Economic Journal, Royal Economic Society, vol. 104(424), pages 528-541, May.
    3. Tito Boeri & Michael C. Burda, 2009. "Preferences for Collective Versus Individualised Wage Setting," Economic Journal, Royal Economic Society, vol. 119(540), pages 1440-1463, October.
    4. John T. Addison & Claus Schnabel (ed.), 2003. "International Handbook of Trade Unions," Books, Edward Elgar Publishing, number 2705.
    5. Qiu, Larry D., 1997. "On the Dynamic Efficiency of Bertrand and Cournot Equilibria," Journal of Economic Theory, Elsevier, vol. 75(1), pages 213-229, July.
    6. Céline Bonnet & Pierre Dubois, 2010. "Inference on vertical contracts between manufacturers and retailers allowing for nonlinear pricing and resale price maintenance," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 139-164, March.
    7. Arijit Mukherjee & Udo Broll & Soma Mukherjee, 2012. "Bertrand Versus Cournot Competition In A Vertical Structure: A Note," Manchester School, University of Manchester, vol. 80(5), pages 545-559, September.
    8. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    9. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2014. "Price vs. quantity competition in a vertically related market," Economics Letters, Elsevier, vol. 124(1), pages 122-126.
    10. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
    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. Jiaqi Chen & Sang‐Ho Lee, 2023. "Cournot–Bertrand comparisons under R&D competition: Output versus R&D subsidies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(1), pages 77-100, March.
    2. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2014. "Price vs. quantity competition in a vertically related market," Economics Letters, Elsevier, vol. 124(1), pages 122-126.
    3. Lee, DongJoon & Choi, Kangsik & Nariu, Tatsuhiko, 2016. "Endogenous Choice of Price or Quantity Contract with Upstream R&D Investment: Linear Pricing and Two-part Tariff Contract with Bargaining," MPRA Paper 72752, University Library of Munich, Germany.
    4. Kangsik Choi & Seonyoung Lim, 2023. "Input Price Discrimination in Endogenous Competition Mode," The Japanese Economic Review, Springer, vol. 74(2), pages 301-330, April.
    5. Ki‐Dong Lee & Sunghee Choi & Kangsik Choi, 2020. "Bertrand versus Cournot competition in a downstream mixed oligopoly with foreign ownership," Bulletin of Economic Research, Wiley Blackwell, vol. 72(2), pages 101-120, April.
    6. Debasmita Basak, 2023. "Price and Quantity Competition under Vertical Pricing," Games, MDPI, vol. 14(4), pages 1-8, June.
    7. Luciano Fanti & Nicola Meccheri, 2015. "On the Cournot–Bertrand Profit Differential and the Structure of Unionisation in a Managerial Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 266-287, December.
    8. Basak, Debasmita, 2017. "Cournot vs. Bertrand under centralised bargaining," Economics Letters, Elsevier, vol. 154(C), pages 124-127.
    9. Montinaro, Marta & Scrimitore, Marcella, 2019. "Per unit and ad valorem royalties in a patent licensing game," MPRA Paper 96642, University Library of Munich, Germany.
    10. Lee, DongJoon & Choi, Kangsik & Hwang, Kyu-Chan, 2014. "Reverse First-mover and Second-mover Advantage in a Vertical Structure," MPRA Paper 59803, University Library of Munich, Germany.
    11. Fanti, Luciano, 2013. "Cross-ownership and unions in a Cournot duopoly: When profits reduce with horizontal product differentiation," Japan and the World Economy, Elsevier, vol. 27(C), pages 34-40.
    12. Fanti, Luciano & Gori, Luca, 2012. "The dynamics of a differentiated duopoly with quantity competition," Economic Modelling, Elsevier, vol. 29(2), pages 421-427.
    13. Fanti, Luciano & Gori, Luca, 2011. "The dynamics of a Bertrand duopoly with differentiated products and bounded rational firms revisited," MPRA Paper 33268, University Library of Munich, Germany.
    14. Fanti, Luciano & Gori, Luca & Mammana, Cristiana & Michetti, Elisabetta, 2014. "Local and global dynamics in a duopoly with price competition and market share delegation," Chaos, Solitons & Fractals, Elsevier, vol. 69(C), pages 253-270.
    15. Manasakis, Constantine & Vlassis, Minas, 2014. "Downstream mode of competition with upstream market power," Research in Economics, Elsevier, vol. 68(1), pages 84-93.
    16. Mukherjee, Arijit & Wang, Leonard F.S. & Sun, Ji, 2024. "Bertrand-Cournot profit reversal in a vertical structure with cross ownership," Economics Letters, Elsevier, vol. 238(C).
    17. Michael Polemis & Konstantinos Eleftheriou, 2018. "To Regulate Or To Deregulate? The Role Of Downstream Competition In Upstream Monopoly Vertically Linked Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 70(1), pages 51-63, January.
    18. Kangsik, Choi, 2012. "Cournot and Bertrand competition with asymmetric costs in a mixed duopoly revisited," MPRA Paper 37704, University Library of Munich, Germany, revised 28 Mar 2012.
    19. Arghya Ghosh & Manipushpak Mitra, 2008. "Comparing Bertrand and Cournot Outcomes in the Presence of Public Firms," Discussion Papers 2008-18, School of Economics, The University of New South Wales.
    20. Luciano Fanti & Marcella Scrimitore, 2019. "How to Compete? Cournot versus Bertrand in a Vertical Structure with an Integrated Input Supplier," Southern Economic Journal, John Wiley & Sons, vol. 85(3), pages 796-820, January.

    More about this item

    Keywords

    Bargaining; Bertrand; Cournot; Two-part tariffs; Vertical pricing; Welfare;
    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
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

    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:eee:ecolet:v:138:y:2016:i:c:p:53-56. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    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.