Auctions vs. negotiations in vertically related markets

Emanuele Bacchiega, Olivier Bonroy and Emmanuel Petrakis

Economics Letters, 2020, vol. 192, issue C

Abstract: In a two-tier industry with bottleneck upstream and two downstream firms producing vertically differentiated goods, we identify conditions under which the upstream supplier chooses exclusive or non-exclusive negotiations, or an English auction to sell its essential input. Auctioning off a two-part tariff contract is optimal for the supplier when its bargaining power is low and the final goods are not too differentiated. Otherwise, the supplier enters into exclusive or non-exclusive negotiations with the downstream firm(s). Finally, in contrast to previous findings, an auction is never welfare superior to negotiations.

Keywords: Vertical relationships; Exclusive vs. non-exclusive relationships; Auctions (search for similar items in EconPapers)
JEL-codes: D43 L13 L14 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Auctions vs. negotiations in vertically related markets (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:192:y:2020:i:c:s0165176520301476

DOI: 10.1016/j.econlet.2020.109198

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