Vertical Contracting and Information Spillover in Cournot Competition

Jihwan Do and Nicolas Riquelme
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Jihwan Do: Yonsei University
Nicolas Riquelme: Universidad de los Andes

No 2025rwp-251, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: We revisit Cournot competition with asymmetric demand information by introducing a common input supplier. We characterize a unique equilibrium where information spills over through screening and signaling in vertical contracting. The equilibrium outcomes either coincide with those under complete information or involve quantity distortions. Compared to the independent-supplier case, the presence of the common supplier enhances both consumer and producer surplus under mild downstream competition. Under intense competition, producer surplus can decline, although consumer surplus may still increase. Our findings reveal informational efficiency gains of upstream mergers and the possibility of a welfare improvement even when direct efficiency gains are absent.

Keywords: Cournot competition; Asymmetric information; Common agency; Information transmission; Vertical contracting; Screening; Signaling. (search for similar items in EconPapers)
JEL-codes: D82 D86 L13 (search for similar items in EconPapers)
Pages: 35pages
Date: 2025-06
New Economics Papers: this item is included in nep-com, nep-gth and nep-mic
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