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Equilibrium strategic overbuying

Eric Avenel () and Clémence Christin ()

Economics Working Paper Archive (University of Rennes 1 & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS

Abstract: We consider two firms competing both to sell their output and purchase their input from an upstream firm, to which they offer non-linear contracts. Firms may engage in strategic overbuying, purchasing more of the input when the supplier is capacity constrained than when it is not in order to exclude their competitor from the final market. Warehousing is a special case in which a downstream firm purchases more input than it uses and disposes of the rest. We show that both types of overbuying happen in equilibrium. The welfare analysis leads to ambiguous conclusions.

Keywords: entry deterrence; overbuying; vertical contracting (search for similar items in EconPapers)
JEL-codes: L12 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-bec and nep-com
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Working Paper: Equilibrium strategic overbuying (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:tut:cremwp:201205

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