Endogenous Timing in Vertically-Related Markets

Din Hong-Ren () and Sun Chia-Hung ()
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Din Hong-Ren: Department of Tourism and Hospitality, TransWorld University, No. 1221, Zhennan Rd., Douliu City, Yunlin County 640, Taiwan
Sun Chia-Hung: Department of Economics, Soochow University, No. 56, Kueiyang Street, Section 1, Taipei100, Taiwan

The B.E. Journal of Theoretical Economics, 2018, vol. 18, issue 2, 18

Abstract: This paper investigates the theory of endogenous timing by taking into account a vertically-related market where an integrated firm competes with a downstream firm. Contrary to the standard results in the literature, we find that both firms play a sequential game in quantity competition and play a simultaneous game in price competition. Under mixed quantity-price competition, the firm choosing a price strategy moves first and the other firm choosing a quantity strategy moves later in equilibrium. Given that the timing of choosing actions is determined endogenously, aggregate profit (consumer surplus) is higher (lower) under price competition than under quantity competition. Lastly, social welfare is higher under quantity competition than under price competition when the degree of product substitutability is relatively low.

Keywords: Bertrand competition; Cournot competition; Endogenous timing; Vertically-related markets (search for similar items in EconPapers)
JEL-codes: D21 D43 L13 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1515/bejte-2016-0103

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