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Upstream Competition with Complex and Unobservable Contracts

Author

Listed:
  • Izak Atiyas

    (Sabanci University)

  • Toker Doganoglu

    (University of Würzburg)

  • Firat Inceoglu

    (University of Würzburg)

Abstract

This paper examines situations where two vertically integrated firms consider supplying an input to an independent downstream competitor via privately observed contracts. We identify equilibria where competition in the upstream market emerges—the downstream competitor gets supplied—as well as when the downstream firm does not receive the input and is excluded from the market. The likelihood of the outcome in which the downstream firm does not get supplied depends not only on demand parameters, but also on contractual flexibility and observability. We show that when contracts are unobservable, downstream entry will occur less often. Furthermore, our results suggest that permitting contracts that enable the contracting parties to coordinate their behavior in the downstream market may improve welfare by increasing the likelihood that the downstream firm is supplied.

Suggested Citation

  • Izak Atiyas & Toker Doganoglu & Firat Inceoglu, 2021. "Upstream Competition with Complex and Unobservable Contracts," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(3), pages 399-429, May.
    • Handle: RePEc:kap:revind:v:58:y:2021:i:3:d:10.1007_s11151-020-09766-y
    DOI: 10.1007/s11151-020-09766-y
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    References listed on IDEAS

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    1. Malin Arve & Øystein Foros & Hans Jarle Kind, 2022. "Access price structure and entrant build-or-buy incentives in mobile markets," Journal of Regulatory Economics, Springer, vol. 61(1), pages 67-87, February.

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    More about this item

    Keywords

    Collective refusal to supply; Foreclosure; Unobservable contracts; Upstream competition;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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