Returns to Scale and Vertical Restraints in a Regulated Industry

Y. Nakache and Antoine Soubeyran

G.R.E.Q.A.M. from Universite Aix-Marseille III

Abstract: This paper revisits, in an environmental context, the vertical restraints literature as developed by Bonanno and Vickers (1988), Gal-Or (1991), Lin (1988) or Nakache and Soubeyran (1998) in an oligopolistic and deterministic situation. This literature considers constant returns to scale at the upstream stage in an unregulated industry (absence of pollution standards) and proves, in this case, the domination (in terms of profits) of a Retail Price Maintenance contract by a Franchise fee contract for each firm. Here, we take account the presence of general returns to scale as well as finite pollution standards (regulation) and show that, contrary to the previous literature, there are several cases where Bertrand duopolistic firms are indifferent between Franchise Fee and Retail Price Maintenance in terms of profits. For the others cases, each firm finds it more interesting to select Franchise fee as usually.

Keywords: ENVIRONMENTAL PROTECTION; ENVIRONMENT; POLLUTION (search for similar items in EconPapers)
JEL-codes: L11 L42 Q28 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:fth:aixmeq:00a06

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