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PREDATORY ACCOMMODATION IN VERTICAL CONTRACTING WITH EXTERNALITIES

Philippe Bontems and Zohra Mechemache ()

No 22044, 2003 Annual meeting, July 27-30, Montreal, Canada from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: The goal of this paper is to analyze vertical contracts between manufacturers and retailers in a channel including the upstream input market. Using a Nash bargaining framework, we study the contract negotiations between manufacturers and the common retailer, both in a simultaneous and sequential game. The oligopsonistic behavior of manufacturers on the upstream market provides a new explanation for predatory accommodation. With two-parts tariff, we show that joint profit of the industry is not maximised at simultaneous bilateral bargaining equilibria and that below marginal cost pricing in the intermediate goods market arises, when final products are substitutes, and may be welfare improving. When negotiations occurs sequentially, we show, in the two-manufacturers case, that the first manufacturer which enters into negotiations and the retailer may jointly prefer above marginal cost pricing or not, depending on the distribution of bargaining power in the channel. However, the second manufacturer equilibrium wholesale price is set below marginal cost.

Keywords: Agribusiness (search for similar items in EconPapers)
Pages: 27
Date: 2003
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http://ageconsearch.umn.edu/record/22044/files/sp03bo03.pdf (application/pdf)

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Working Paper: Predatory accomodation in vertical contracting with externalities (2004) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea03:22044

DOI: 10.22004/ag.econ.22044

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