Horizontal contracts in a dominant firm-competitive fringe model

Manel Antelo and Lluis Bru

MPRA Paper from University Library of Munich, Germany

Abstract: This paper offers a rationale for production subcontracting by a market power firm from smaller firms despite the latter’s ability to sell the good for themselves. Particularly, in a dominant firm (DF) model in which the good can be sold through linear pricing or through nonlinear two-part tariff (2PT) contracts, we demonstrate that the DF finds it optimal, whenever it sells its own production plus outsourced production, to subcontract production from fringe firms by setting nonlinear 2PT contracts.

Keywords: Dominant firm model; linear prices; nonlinear 2PT contracts; horizontal subcontracting; welfare (search for similar items in EconPapers)
JEL-codes: L11 L14 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-com, nep-cta and nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:105774

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