Price vs. quantity competition in a vertically related market revisited

Debasmita Basak and Arijit Mukherjee

Economics Letters, 2017, vol. 153, issue C, 12-14

Abstract: In a recent paper, Alipranti et al. (2014) show that, in a vertically related market, Cournot competition yields higher social welfare than Bertrand competition if the upstream firm subsidises the downstream firm’s production via negative wholesale input prices. However, the assumption of a negative input price is not economically viable as it encourages the downstream firms to buy an unbounded amount of inputs. We show that the welfare ranking is reversed once we introduce a non-negativity constraint on the input prices.

Keywords: Bargaining; Bertrand; Cournot; Two-part tariffs; Vertical pricing; Welfare (search for similar items in EconPapers)
JEL-codes: D43 L13 L14 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Price vs. Quantity Competition in a Vertically Related Market Revisited (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:153:y:2017:i:c:p:12-14

DOI: 10.1016/j.econlet.2017.01.021

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