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Endogenous timing when a vertically integrated producer supplies a rival

Anil Arya () and Brian Mittendorf
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Anil Arya: Ohio State University
Brian Mittendorf: Ohio State University

Journal of Regulatory Economics, 2018, vol. 54, issue 2, 105-123

Abstract: Abstract This paper derives the timing equilibrium when a vertically integrated producer (VIP) supplies essential inputs to its retail rival. Such circumstances arise in a variety of industries, often characterized by regulated input prices. The distinguishing feature of markets with an influential VIP is that the VIP is not only a retail competitor but is also concerned about wholesale profits–profits it gleans from its retail rival(s). The VIP’s desire to balance profits across wholesale and retail markets leads to results that challenge conventional thinking about timing equilibria. Notably, under quantity competition, rather than the familiar cut-throat race to be a leader, the timing equilibrium prescribes a natural leader–follower sequencing, with each party in a “win–win” situation relative to simultaneous early play.

Keywords: Competition; Input pricing; Time-to-market; Vertically integrated producer (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:regeco:v:54:y:2018:i:2:d:10.1007_s11149-018-9368-8