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Downstream rivals’ competition, bargaining, and welfare

Author

Listed:
  • Xingtang Wang

    (Jinan University)

  • Jie Li

    (Jinan University
    Jinan University)

Abstract

We analyze the effect of downstream competition (or cooperation) in the presence of decentralized bargaining between two downstream firms and an upstream monopolist over a two-part tariff input price. The major findings are as follows: (i) the relationship between the profits of the upstream monopolist (resp. the downstream firms) and the intensity of competition is U-shaped (resp. inverted U-shaped), irrespective of the competition modes in the downstream product market; (ii) if the intensity of competition is sufficiently high, the downstream firms’ profits are higher under Bertrand competition, whereas if the intensity of competition is sufficiently low, the downstream firms’ profits are higher under Cournot competition; and (iii) a market under Cournot competition is more efficient than a market under Bertrand competition, in the sense that both consumer surplus and social welfare are higher in the case of the former.

Suggested Citation

  • Xingtang Wang & Jie Li, 2020. "Downstream rivals’ competition, bargaining, and welfare," Journal of Economics, Springer, vol. 131(1), pages 61-75, September.
    • Handle: RePEc:kap:jeczfn:v:131:y:2020:i:1:d:10.1007_s00712-018-0644-y
    DOI: 10.1007/s00712-018-0644-y
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    References listed on IDEAS

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    Cited by:

    1. Domenico Buccella & Luciano Fanti, 2022. "Downstream competition and profits under different input price bargaining structures," Journal of Economics, Springer, vol. 136(3), pages 251-268, August.
    2. Ismail Saglam, 2023. "Centralized bargaining with pre‐donation in a vertically related industry," Manchester School, University of Manchester, vol. 91(3), pages 233-259, June.
    3. Wang, Xingtang, 2022. "Input price discrimination, pricing contract and social welfare," Mathematical Social Sciences, Elsevier, vol. 119(C), pages 91-96.
    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. Aditya Bhattacharjea & Srishti Gupta, 2024. "Alternative forms of buyer power in a vertical duopoly: implications for profits, welfare, and cost pass-through," Journal of Economics, Springer, vol. 142(2), pages 163-198, July.
    6. Hong-Ren Din & Chia-Hung Sun, 2023. "Centralized or decentralized bargaining in a vertically-related market with endogenous price/quantity choices," Journal of Economics, Springer, vol. 138(1), pages 73-94, January.

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    More about this item

    Keywords

    Competition behavior; Vertical structure; Competition mode; Decentralized bargaining;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration

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