Input pricing by an upstream monopolist into imperfectly competitive downstream markets

Ioannis Pinopoulos

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: 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: D43 L11 L13 (search for similar items in EconPapers)
Date: 2009-10, Revised 2009-10
New Economics Papers: this item is included in nep-com and nep-ind
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Citations: View citations in EconPapers (1)

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Journal Article: Input pricing by an upstream monopolist into imperfectly competitive downstream markets (2011)
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