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Pricing and market conduct in a vertical relationship

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  • Henrik Vetter

    (Statsbiblioteket)

Abstract

We consider a vertical relationship where an upstream monopolist supplies input to downstream duopolistic firms. Under the assumption that downstream firms produce under a soft capacity restriction, we show that the balance between price and quantity in downstream firms’ strategy is endogenous. In this way, the monopolist’s charge for input co-determines downstream market conduct. We spell out some consequences of this, for example, that an increase of downstream capacity costs can result in increased output. We discuss other implications in relation to pass-through and incidence of cost changes.

Suggested Citation

  • Henrik Vetter, 2017. "Pricing and market conduct in a vertical relationship," Journal of Economics, Springer, vol. 121(3), pages 239-253, July.
  • Handle: RePEc:kap:jeczfn:v:121:y:2017:i:3:d:10.1007_s00712-017-0529-5
    DOI: 10.1007/s00712-017-0529-5
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    References listed on IDEAS

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    Cited by:

    1. Shohei Yoshida, 2018. "Bargaining power and firm profits in asymmetric duopoly: an inverted-U relationship," Journal of Economics, Springer, vol. 124(2), pages 139-158, June.
    2. Xingtang Wang & Jie Li, 2020. "Downstream rivals’ competition, bargaining, and welfare," Journal of Economics, Springer, vol. 131(1), pages 61-75, September.
    3. Ioannis N. Pinopoulos, 2020. "Upstream horizontal mergers involving a vertically integrated firm," Journal of Economics, Springer, vol. 130(1), pages 67-83, June.
    4. Sergio Daga & Pedro Mendi, 2022. "Informal input suppliers, quality choice and welfare," Journal of Economics, Springer, vol. 136(2), pages 149-176, July.
    5. Henrik Vetter, 2017. "Commodity taxes and welfare under endogenous market conduct," Journal of Economics, Springer, vol. 122(2), pages 137-154, October.

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    More about this item

    Keywords

    Vertical relationships; Endogenous market conduct; Market structure and pricing;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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