Competition with Exclusive Contracts in Vertically Related Markets: An Equilibrium Non-Existence Result

Nicolas Schutz

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: I develop a model in the spirit of Ordover, Saloner, and Salop (1990), in which two upstream firms compete to supply a homogeneous input to two downstream firms, who compete in prices with differentiated products in a downstream market. Upstream firms are allowed to offer exclusive two-part tariff contracts to the downstream firms. I show that, under very general conditions, this game does not have a subgame-perfect equilibrium in pure strategies. The intuition is that variable parts in such an equilibrium would have to be pairwise-proof. But when variable parts are pairwise-proof, downstream competitive externalities are not internalized, and there exists a profitable deviation. I contrast this non-existence result with earlier papers that found equilibria in similar models.

Date: 2013-02-23
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Related works:
Journal Article: Competition with exclusive contracts in vertically related markets: An equilibrium non-existence result (2024)
Working Paper: Competition with Exclusive Contracts in Vertically Related Markets: An Equilibrium Non-Existence Result (2024)
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