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Endogenous price leadership with an essential input

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  • Madden, Paul
  • Pezzino, Mario

Abstract

The Hamilton-Slutsky endogenous timing methodology is applied to differentiated duopolies where, motivated by access pricing literature, one firm owns an essential input, sold wholesale to the rival. Both firms then set retail prices for their differentiated goods. The scenario and results are different from standard endogenous timing duopolies, encompassing three prices (one wholesale, two retail) rather than two, with unique timing game equilibrium which always entails retail price leadership by the input owner, thus providing a new and powerful rationalisation for “Stackelberg”. The results call into question the generic access pricing assumption that simultaneous moves determine retail (downstream) prices.

Suggested Citation

  • Madden, Paul & Pezzino, Mario, 2019. "Endogenous price leadership with an essential input," Games and Economic Behavior, Elsevier, vol. 118(C), pages 47-59.
    • Handle: RePEc:eee:gamebe:v:118:y:2019:i:c:p:47-59
    DOI: 10.1016/j.geb.2019.08.002
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    Cited by:

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    2. Yiquan Gu & Leonardo Madio & Carlo Reggiani, 2019. "Exclusive Data, Price Manipulation and Market Leadership," CESifo Working Paper Series 7853, CESifo.
    3. Sverre Grepperud & Pål Andreas Pedersen, 2022. "First and second mover advantages and the degree of conflicting interests," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 1861-1873, September.
    4. Karray, Salma & Martín-Herrán, Guiomar, 2022. "The impact of a store brand introduction in a supply chain with competing manufacturers: The strategic role of pricing and advertising decision timing," International Journal of Production Economics, Elsevier, vol. 244(C).
    5. Rui Ota & Hiroshi Fujiu, 2021. "Price Competition and Setup Cost," Mathematics, MDPI, vol. 9(3), pages 1-15, February.

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    More about this item

    Keywords

    Timing game; Price competition; Differentiated products; Wholesaling essential input;
    All these keywords.

    JEL classification:

    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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