Supply Contracts under Partial Forward Ownership

Matthias Hunold and Frank Schlütter
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Frank Schlütter: Université catholique de Louvain, LIDAM/CORE, Belgium

No 2022003, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: With forward ownership, an upstream supplier internalizes the effect of its supply contracts on the downstream firms, which is so far understood to decrease prices. We show that instead downstream prices generally increase if firms use two-part tariffs. The price-increasing effect of forward ownership occurs with both observable and secret two-part tariffs, albeit for different economic reasons. The results arise under both quantity and price competition as well as for different belief refinements. Partial forward ownership can be more profitable and more harmful for consumers than a full vertical merger between an upstream and a downstream firm.

Keywords: Vertical relations; minority shareholding; partial forward ownership (search for similar items in EconPapers)
JEL-codes: L22 L40 L8 (search for similar items in EconPapers)
Pages: 47
Date: 2022-01-01
New Economics Papers: this item is included in nep-com, nep-cta, nep-ind and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2022003

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