Endogenous Contracts Under Bargaining in Competing Vertical Chains

Nikolaos Vettas (), Emmanuel Petrakis and Chrysovalantou Milliou

No 3976, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We investigate the endogenous determination of contracts in competing vertical chains where upstream and downstream firms bargain first over the type of contract and then over the contract terms. Upstream firms always opt for non-linear contracts, which specify the input quantity and its total price. Downstream firms also opt for non-linear contracts, unless their bargaining power is low, in which case they prefer wholesale price contracts. While welfare is maximized under two-part tariffs, these are dominated in equilibrium by non-linear contracts.

Keywords: Vertical chains; Strategic contracting; Bargaining; Two-part tariffs; Non-linear contracts; Wholesale prices (search for similar items in EconPapers)
JEL-codes: L13 L14 L22 L42 L81 (search for similar items in EconPapers)
Date: 2003-07
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (12)

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