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A note on the effects of downstream free entry on wholesale pricing

Ioannis Pinopoulos

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: We consider a simple model where downstream firms (retailers) carry the product of an upstream supplier (manufacturer). Under very general demand conditions, we show that, when downstream entry is endogenously dependent on profitability conditions, the optimal wholesale price charged by the manufacturer is higher under competitive conditions than under monopolistic conditions in the downstream market. The well-known result of the upstream supplier’s pricing policy being invariant to downstream market structure is reversed when free entry in the downstream market is taken into account.

Keywords: Pricing; Supply chains; Equilibrium; Competition; Free entry. (search for similar items in EconPapers)
JEL-codes: L22 (search for similar items in EconPapers)
Date: 2014-09, Revised 2014-09
New Economics Papers: this item is included in nep-com, nep-ger and nep-ind
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