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Double markups under bilateral vertical contracting

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  • Fu, Xiao
  • Tan, Guofu

Abstract

This paper examines price markups at the upstream and downstream levels of a bilateral vertical structure in which firms provide essential inputs to one another and engage in price competition in the downstream market. We show that the ratios of noncooperative equilibrium markups are primarily determined by the price elasticities of demand and the retail pass-through rates and, moreover, that coordination on input prices leads to a collusive equilibrium outcome in the final-product market.

Suggested Citation

  • Fu, Xiao & Tan, Guofu, 2024. "Double markups under bilateral vertical contracting," Economics Letters, Elsevier, vol. 237(C).
    • Handle: RePEc:eee:ecolet:v:237:y:2024:i:c:s0165176524001435
    DOI: 10.1016/j.econlet.2024.111660
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    References listed on IDEAS

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    4. Adachi, Takanori & Ebina, Takeshi, 2014. "Cost pass-through and inverse demand curvature in vertical relationships with upstream and downstream competition," Economics Letters, Elsevier, vol. 124(3), pages 465-468.
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    More about this item

    Keywords

    Double marginalization; Bilateral vertical contracting; Markup ratio; Pass-through rates;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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