Input pricing by an upstream monopolist into imperfectly competitive downstream markets
Discussion Paper Series from Department of Economics, University of Macedonia
In downstream markets where entry is independent from profitability conditions, the upstream supplier’s optimal pricing policy is invariant with respect to downstream market structure. This price invariant result, however, is reversed when there is free entry in downstream market. When entry is endogenously dependent on profitability conditions, the upstream supplier’s price-setting behavior depends on the number of operative firms in the final good market. We show that the upstream supplier charges a higher input price under a free entry situation in downstream market than under a no-entry condition. We also show that a higher input price is set under Bertrand competition than under Cournot competition in a downstream market with free entry.
Keywords: Vertical relationship; Pricing; Competition; Oligopoly; Free entry. (search for similar items in EconPapers)
JEL-codes: L11 L13 D43 (search for similar items in EconPapers)
Date: 2009-10, Revised 2009-10
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Journal Article: Input pricing by an upstream monopolist into imperfectly competitive downstream markets (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:mcd:mcddps:2009_14
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