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Price-Cost Margins and Successive Market Power

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  • Michael Waterson

Abstract

The aim of this paper is to investigate the impact on an industry's price-cost margin of firms in downstream industries having seller market power. We develop a detailed theoretical model based upon Cournot's work in this area which predicts that margins are raised by an increase in successive market power of this type. Our prediction contrasts with work by Lustgarten, who found that bilateral market power depressed margins; we explain our result intuitively in terms of two opposing effects. In our regression analysis on U. K. data we test the two hypotheses simultaneously and find both confirmed.

Suggested Citation

  • Michael Waterson, 1980. "Price-Cost Margins and Successive Market Power," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(1), pages 135-150.
    • Handle: RePEc:oup:qjecon:v:94:y:1980:i:1:p:135-150.
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    File URL: http://hdl.handle.net/10.2307/1884608
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    Cited by:

    1. Irmen, Andreas, 1997. "Mark-up pricing and bilateral monopoly," Economics Letters, Elsevier, vol. 54(2), pages 179-184, February.
    2. Inderst, Roman & Wey, Christian, 2003. "Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 1-19, Spring.
    3. Charles J. Corbett & Uday S. Karmarkar, 2001. "Competition and Structure in Serial Supply Chains with Deterministic Demand," Management Science, INFORMS, vol. 47(7), pages 966-978, July.
    4. William S. Comanor & David Salant, 2017. "Resale Price Maintenance Post Leegin: A Model of RPM Incentives," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(2), pages 169-179, March.
    5. Inderst, Roman & Wey, Christian, 2007. "Buyer power and supplier incentives," European Economic Review, Elsevier, vol. 51(3), pages 647-667, April.
    6. Joshua S. Gans, 2007. "Vertical Contracting When Competition For Orders Precedes Procurement," Journal of Industrial Economics, Wiley Blackwell, vol. 55(2), pages 325-346, June.
    7. Spyridon Stavropoulos & Dimitris Skuras, 2016. "Firm Profitability and Agglomeration Economies: An Elusive Relationship," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 107(1), pages 66-80, February.
    8. Suchan Chae & Paul Heidhues, 2004. "Buyers' Alliances for Bargaining Power," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 731-754, December.
    9. Scott M. Carr & Uday S. Karmarkar, 2005. "Competition in Multiechelon Assembly Supply Chains," Management Science, INFORMS, vol. 51(1), pages 45-59, January.
    10. John R. Schroeter & Azzeddine M. Azzam & Mingxia Zhang, 2000. "Measuring Market Power in Bilateral Oligopoly: The Wholesale Market for Beef," Southern Economic Journal, John Wiley & Sons, vol. 66(3), pages 526-547, January.
    11. Steffen Ziss, 2005. "Horizontal Mergers and Successive Oligopoly," Journal of Industry, Competition and Trade, Springer, vol. 5(2), pages 99-114, June.
    12. Cui, Herui & Wei, Pengbang, 2017. "Analysis of thermal coal pricing and the coal price distortion in China from the perspective of market forces," Energy Policy, Elsevier, vol. 106(C), pages 148-154.

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