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Decentralization and Consumer Welfare with Substitutes or Complements

Author

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  • Nicolas Pasquier

    (University of Bordeaux
    University Grenoble Alpes, CNRS, INRA, Grenoble INP, GAEL)

Abstract

We study a vertically integrated producer (VIP) that supplies a downstream firm under price competition. The VIP may decentralize the final price decision to its downstream unit; the latter thereby ignores the effect of the output price on upstream sales. We find that decentralization benefits the VIP – irrespective of whether the products are substitutes or complements. Decentralization also benefits the consumers when products are substitutes, but it harms them when the products are complements. Interestingly, when products are substitutes, decentralization decreases both output prices despite restoring a double margin on the downstream unit’s sales.

Suggested Citation

  • Nicolas Pasquier, 2024. "Decentralization and Consumer Welfare with Substitutes or Complements," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(3), pages 449-469, May.
    • Handle: RePEc:kap:revind:v:64:y:2024:i:3:d:10.1007_s11151-023-09941-x
    DOI: 10.1007/s11151-023-09941-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Decentralization; Substitutes; Complements;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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