Oligopoly intermediation, relative rivalry and market conduct

Stephen Hamilton, Philippe Bontems and Jason Lepore
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Philippe Bontems: GREMAQ - Groupe de recherche en économie mathématique et quantitative - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique
Jason Lepore: CAL POLY - California Polytechnic State University [San Luis Obispo]

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Abstract: We consider two firms that compete against each other jointly in upstream and downstream markets under two pricing games: Purchasing to stock (PTS), in which firms select input prices prior to setting consumer prices; and purchasing to order (PTO), in which firms sell forward contracts to consumers prior to selecting input prices. The antitrust implications of the model depend on the relative degree of oligopoly rivalry in the upstream and down- stream markets. Firms strategically precommit to setting prices in the less rivalrous market, which serves to soft- en competition in the more rivalrous market, resulting in anticompetitive effects. Bertrand prices emerge in equilibrium when the markets are equally rivalrous, while Cournot outcomes arise with upstream monopsony or downstream monopoly markets. The slope of firm reaction functions depends on relative rivalry, a feature we use to derive testable hypotheses for antitrust analysis of a wide variety of industry practices.

Keywords: policy; intermediation; oligopoly; strategic pre-commitment (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

Published in International Journal of Industrial Organization, 2015, 40 (May 2015), pp.49-59. ⟨10.1016/j.ijindorg.2015.03.002⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01183029

DOI: 10.1016/j.ijindorg.2015.03.002

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