Decentralization and Consumer Welfare with Substitutes or Complements

Nicolas Pasquier ()
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Nicolas Pasquier: University of Bordeaux

Review of Industrial Organization, 2024, vol. 64, issue 3, No 6, 449-469

Abstract: 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.

Keywords: Decentralization; Substitutes; Complements (search for similar items in EconPapers)
JEL-codes: L14 L22 L42 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11151-023-09941-x

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