Auctions vs. negotiations in vertically related markets

Emanuele Bacchiega, Olivier Bonroy and Emmanuel Petrakis

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Abstract: In a two-tier industry with bottleneck upstream and two downstream firms producing vertically differentiated goods, we identify conditions under which the upstream supplier chooses exclusive or non-exclusive negotiations, or an English auction to sell its essential input. Auctioning off a two-part tariff contract is optimal for the supplier when its bargaining power is low and the final goods are not too differentiated. Otherwise, the supplier enters into exclusive or non-exclusive negotiations with the downstream firm(s). Finally, in contrast to previous findings, an auction is never welfare superior to negotiations.

Keywords: Vertical relationships; Exclusive vs non exclusive relationships; Auctions (search for similar items in EconPapers)
Date: 2020-07-01
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Published in Economics Letters, 2020, 192 (July), ⟨10.1016/j.econlet.2020.109198⟩

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Journal Article: Auctions vs. negotiations in vertically related markets (2020)
Working Paper: Auctions vs. negotiations in vertically related markets (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02612764

DOI: 10.1016/j.econlet.2020.109198

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