Endogenous price leadership with an essential input

Paul Madden and Mario Pezzino ()

Games and Economic Behavior, 2019, vol. 118, issue C, 47-59

Abstract: The Hamilton-Slutsky endogenous timing methodology is applied to differentiated duopolies where, motivated by access pricing literature, one firm owns an essential input, sold wholesale to the rival. Both firms then set retail prices for their differentiated goods. The scenario and results are different from standard endogenous timing duopolies, encompassing three prices (one wholesale, two retail) rather than two, with unique timing game equilibrium which always entails retail price leadership by the input owner, thus providing a new and powerful rationalisation for “Stackelberg”. The results call into question the generic access pricing assumption that simultaneous moves determine retail (downstream) prices.

Keywords: Timing game; Price competition; Differentiated products; Wholesaling essential input (search for similar items in EconPapers)
JEL-codes: C72 D43 L42 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:118:y:2019:i:c:p:47-59

DOI: 10.1016/j.geb.2019.08.002

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