Communication in Vertically Related Markets: Experimental Evidence

Hans-Theo Normann, Claudia Möllers and Christopher Snyder

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: When an upstream monopolist supplies several competing downstream firms, it may fail to monopolize the market because of opportunistic behavior towards the downstream firms. We analyze this well-known commitment problem in an experiment where we extend previous research by allowing for communication. In one treatment, the upstream firm can bilaterally talk to either of two downstream firms. In a second treatment, all three firms talk together. We find that the treatment with bilateral communication leads to fewer rejections of offers and higher joint profits than a baseline treatment without communication, but output is still above the monopoly benchmark. Only the treatment where all three firms can communicate leads to complete monopolization. Such communication effectively works as a vertical restraint and should be regarding as potentially anticompetitive.

JEL-codes: C90 L12 L42 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-com and nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:112842

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