Vertical Contracting When Competition for Orders Precedes Procurement

Joshua Gans

No 123, Econometric Society 2004 Australasian Meetings from Econometric Society

Abstract: This paper reverses the standard order between input supply negotiations and downstream competition and assumes that competition for orders takes place prior to procurement of inputs in a vertical chain. In an environment where procurement negotiations involve no private information and no restrictions on the form of pricing, it is found that oligopolistically competitive outcomes will result despite the presence of an upstream monopolist. It is demonstrated that vertical integration is a means by which the monopolist can leverage its market power downstream to the detriment of consumers. However, it does so, not by foreclosing on independent downstream firms, but by softening the competitive behaviour of its own integrated units. Thus, the paper provides a simple rationale for anti-competitive vertical integration in an environment that respects the usual Chicago school assumptions

Keywords: vertical contracting; vertical integration; monopolisation; bargaining; competition (search for similar items in EconPapers)
JEL-codes: L42 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (2)

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Journal Article: VERTICAL CONTRACTING WHEN COMPETITION FOR ORDERS PRECEDES PROCUREMENT* (2007)
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