IDEAS home Printed from https://ideas.repec.org/p/ags/aaea03/22044.html
   My bibliography  Save this paper

Predatory Accommodation In Vertical Contracting With Externalities

Author

Listed:
  • Bontems, Philippe
  • Bouamra-Mechemache, Zohra

Abstract

The goal of this paper is to analyze vertical contracts between manufacturers and retailers in a channel including the upstream input market. Using a Nash bargaining framework, we study the contract negotiations between manufacturers and the common retailer, both in a simultaneous and sequential game. The oligopsonistic behavior of manufacturers on the upstream market provides a new explanation for predatory accommodation. With two-parts tariff, we show that joint profit of the industry is not maximised at simultaneous bilateral bargaining equilibria and that below marginal cost pricing in the intermediate goods market arises, when final products are substitutes, and may be welfare improving. When negotiations occurs sequentially, we show, in the two-manufacturers case, that the first manufacturer which enters into negotiations and the retailer may jointly prefer above marginal cost pricing or not, depending on the distribution of bargaining power in the channel. However, the second manufacturer equilibrium wholesale price is set below marginal cost.

Suggested Citation

  • Bontems, Philippe & Bouamra-Mechemache, Zohra, 2003. "Predatory Accommodation In Vertical Contracting With Externalities," 2003 Annual meeting, July 27-30, Montreal, Canada 22044, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea03:22044
    DOI: 10.22004/ag.econ.22044
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/22044/files/sp03bo03.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.22044?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Irmen, Andreas, 1997. "Note on duopolistic vertical restraints," European Economic Review, Elsevier, vol. 41(8), pages 1559-1567, August.
    2. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
    3. Mingxia Zhang, 1997. "The Effects of Imperfect Competition on the Size and Distribution of Research Benefits," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1252-1265.
    4. Leslie M. Marx & Greg Shaffer, 1999. "Predatory Accommodation: Below-Cost Pricing without Exclusion in Intermediate Goods Markets," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 22-43, Spring.
    5. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-230, March.
    6. Stephen F. Hamilton & David Sunding, 1998. "Returns to Public Investments in Agriculture with Imperfect Downstream Competition," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 830-838.
    7. Stephen F. Hamilton & David L. Sunding, 1997. "The Effect of Farm Supply Shifts on Concentration and Market Power in the Food Processing Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 524-531.
    8. Joyce J. Wann & Sexton Richard J., 1992. "Imperfect Competition in Multiproduct Food Industries with Application to Pear Processing," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(4), pages 980-990.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. João Ricardo Faria & Franklin G. Mixon, 2016. "Farmer-Entrepreneurs, Agricultural Innovation, and Explosive Research and Development Cycles," Administrative Sciences, MDPI, vol. 6(4), pages 1-11, September.
    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. Alston, Julian M. & Sexton, Richard J. & Zhang, Mingxia, 1999. "Imperfect competition, functional forms, and the size and distribution of research benefits," Agricultural Economics, Blackwell, vol. 21(2), pages 155-172, October.
    4. Bagwell, Kyle & Staiger, Robert W., 2010. "Backward stealing and forward manipulation in the WTO," Journal of International Economics, Elsevier, vol. 82(1), pages 49-62, September.
    5. David M. McEvoy & Sylvia Brandt & Sven Anders, 2009. "The Effects of ITQ Management on Fishermen’s Welfare When the Processing Sector Is Imperfectly Competitive," Land Economics, University of Wisconsin Press, vol. 85(3), pages 470-484.
    6. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 15, pages 1073-1225, Elsevier.
    7. Marc Blatter & Silvio Sticher, 2013. "Exclusivity Clauses: Enhancing Competition, Raising Prices," Diskussionsschriften dp1312, Universitaet Bern, Departement Volkswirtschaft.
    8. Johannes Münster & Markus Reisinger, 2021. "Sequencing Bilateral Negotiations with Externalities," ECONtribute Discussion Papers Series 096, University of Bonn and University of Cologne, Germany.
    9. Jay Pil Choi & Sang-Seung Yi, 2000. "Vertical Foreclosure with the Choice of Input Specifications," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 717-743, Winter.
    10. Philippe Bontems & Nicolas Gruyer, 2007. "When cost improvements harm consumers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 30(1), pages 63-79, February.
    11. Bedre-Defolie, Ö., 2012. "Vertical coordination through renegotiation," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 553-563.
    12. Fumagalli, Chiara & Motta, Massimo, 2001. "Upstream mergers, downstream mergers, and secret vertical contracts," Research in Economics, Elsevier, vol. 55(3), pages 275-289, September.
    13. Boone, Jan & Müller, Wieland & Suetens, Sigrid, 2009. "Naked exclusion: Towards a behavioral approach to exclusive dealing," CEPR Discussion Papers 7303, C.E.P.R. Discussion Papers.
    14. Philippe Choné & Laurent Linnemer, 2016. "Nonlinear pricing and exclusion:II. Must-stock products," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 631-660, August.
    15. Liang Guo & Ganesh Iyer, 2013. "Multilateral Bargaining and Downstream Competition," Marketing Science, INFORMS, vol. 32(3), pages 411-430, May.
    16. Martimort, David & Pouyet, Jérôme & Trégouët, Thomas, 2021. "Contracts as a barrier to entry: Impact of Buyer’s asymmetric information and bargaining power," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    17. David Mills, 2007. "Quasi-Partnerships in Distribution," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 31(3), pages 155-168, November.
    18. repec:dpr:wpaper:0878 is not listed on IDEAS
    19. Claire Chambolle & Hugo Molina, 2021. "A Buyer Power Theory of Exclusive Dealing and Exclusionary Bundling," Working Papers hal-03231803, HAL.
    20. Kitamura, Hiroshi & Matsushima, Noriaki & Sato, Misato, 2018. "Exclusive contracts with complementary inputs," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 145-167.
    21. Hunold, Matthias & Schlütter, Frank, 2022. "Supply Contracts under Partial Forward Ownership," LIDAM Discussion Papers CORE 2022003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

    More about this item

    Keywords

    Agribusiness;

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea03:22044. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.