Price-Dependent Profit Sharing as an Escape from the Bertrand Paradox

Øystein Foros, Kare P. Hagen and Hans Jarle Kind

No 1927, CESifo Working Paper Series from CESifo

Abstract: In this paper we show how an upstream firm can prevent destructive competition among downstream firms producing relatively close substitutes by implementing a price-dependent profit-sharing rule. The rule also ensures that the downstream firms undertake investments which benefit the industry in aggregate. The model is consistent with observations from the market for content commodities distributed by mobile networks.

Keywords: profit-sharing; vertical restraints; investments; competition (search for similar items in EconPapers)
JEL-codes: L13 L22 (search for similar items in EconPapers)
Date: 2007
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