Vertical separation with location–price competition
Youping Li () and
Jie Shuai ()
Additional contact information
Jie Shuai: Zhongnan University of Economics and Law
Journal of Economics, 2017, vol. 121, issue 3, 255-266
Abstract While the literature has generally found that vertical separation helps buffer competition and harm consumers in a duopolistic market, we find the exact opposite. To induce the retailers to locate closer to consumers and earn a larger market share, the manufacturers set wholesale prices below marginal cost. This market share effect dominates the previously focused coordination effect under which a higher wholesale price helps coordinate the retailers’ pricing decisions. For each manufacturer, vertical separation is a dominant strategy so the endogenous determination of vertical separation versus vertical integration is a prisoner’s dilemma game.
Keywords: Vertical separation; Vertical integration; Location–price competition (search for similar items in EconPapers)
JEL-codes: L1 R3 D4 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s00712-017-0533-9 Abstract (text/html)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:121:y:2017:i:3:d:10.1007_s00712-017-0533-9
Access Statistics for this article
Journal of Economics is currently edited by Giacomo Corneo
More articles in Journal of Economics from Springer
Series data maintained by Sonal Shukla ().