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Fixed fee discounts and Bertrand competition in vertically related markets

Maria Alipranti and Emmanuel Petrakis ()

Mathematical Social Sciences, 2020, vol. 106, issue C, 19-26

Abstract: We show that Bertrand competition arises in equilibrium in the downstream market of a vertically related industry with bottleneck. The upstream monopolist offers fixed fee discounts to the downstream firms in order to motivate them to set prices , instead of quantities, in the final good market. This is in sharp contrast with the bulk of the literature in which Cournot competition is the equilibrium mode of competition. Bertrand competition is beneficial for all firms, but not for consumers and the society.

Keywords: Bertrand competition; Cournot competition; Vertical relations; Bargaining over two-part tariffs (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.mathsocsci.2020.02.004

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