PREDATORY ACCOMMODATION IN VERTICAL CONTRACTING WITH EXTERNALITIES

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.


Subject(s):
Issue Date:
2003
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/22044
Total Pages:
27
Series Statement:
Selected Paper




 Record created 2017-04-01, last modified 2017-04-26

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)