Endogenous choice of price or quantity contract and the implications of two-part-tariff in a vertical structure

Basak, Debasmita; Wang, Leonard F.S.

Abstract

We re-investigate the endogenous choice of price (Bertrand) and quantity (Cournot) contract in the presence of a vertically related upstream market for input. We find that choosing price contract is the dominant strategy for downstream firms when the two-part-tariff pricing contract is determined through centralised Nash bargaining. We further show that the level of social welfare is the same regardless of the mode of product market competition (i.e., Bertrand or Cournot).

Citation

Basak, D., & Wang, L. F. (2016). Endogenous choice of price or quantity contract and the implications of two-part-tariff in a vertical structure. Economics Letters, 138, https://doi.org/10.1016/j.econlet.2015.11.026

• Journal Article Type: Article
• Acceptance Date: Nov 25, 2015
• Online Publication Date: Dec 3, 2015
• Publication Date: Jan 30, 2016
• Deposit Date: May 31, 2018
• Publicly Available Date: May 31, 2018
• Journal: Economics Letters
• Print ISSN: 0165-1765
• Electronic ISSN: 0165-1765
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 138
• DOI: https://doi.org/10.1016/j.econlet.2015.11.026
• Keywords: Bargaining; Bertrand; Cournot; Two-part tariffs; Vertical pricing; Welfare
• Public URL: https://nottingham-repository.worktribe.com/output/771274
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0165176515004929