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Pricing and market conduct in a vertical relationship

Henrik Vetter ()
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Henrik Vetter: Statsbiblioteket

Journal of Economics, 2017, vol. 121, issue 3, 239-253

Abstract: Abstract We consider a vertical relationship where an upstream monopolist supplies input to downstream duopolistic firms. Under the assumption that downstream firms produce under a soft capacity restriction, we show that the balance between price and quantity in downstream firms’ strategy is endogenous. In this way, the monopolist’s charge for input co-determines downstream market conduct. We spell out some consequences of this, for example, that an increase of downstream capacity costs can result in increased output. We discuss other implications in relation to pass-through and incidence of cost changes.

Keywords: Vertical relationships; Endogenous market conduct; Market structure and pricing (search for similar items in EconPapers)
JEL-codes: L1 D4 L4 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:kap:jeczfn:v:121:y:2017:i:3:d:10.1007_s00712-017-0529-5