Input Prices as Signals of Costs to a Downstream Rival and Customer

Pei-Cheng Liao

The Japanese Economic Review, 2014, vol. 65, issue 3, 414-430

Abstract: type="main">

We consider a dual distribution channel in which a vertically integrated manufacturer competes with a downstream rival in a retail market and also sells an input to the rival. We use a signalling model with a continuum of types to examine a situation in which the manufacturer has private information on the production cost of its retail product. We show that in a separating equilibrium under Cournot (Bertrand) retail competition, the manufacturer signals the uncompetitiveness (competitiveness) of its firm by charging a smaller input price than the optimal price under complete information.

Date: 2014
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