Price vs. quantity competition in a vertically related market revisited

Basak, Debasmita; Mukherjee, Arijit

Abstract

In a recent paper, Alipranti et al. (2014, Price vs. quantity competition in a vertically related market, Economics Letters, 124: 122-126) show that, in a vertically related market, Cournot competition yields higher social welfare than Bertrand competition if the upstream firm subsidises the downstream firm’s production via negative wholesale input prices. However, the assumption of a negative input price is not economically viable as it encourages the downstream firms to buy an unbounded amount of inputs. We show that the welfare ranking is reversed once we introduce a non-negativity constraint on the input prices

Citation

Basak, D., & Mukherjee, A. (2017). Price vs. quantity competition in a vertically related market revisited. Economics Letters, 153, https://doi.org/10.1016/j.econlet.2017.01.021

• Journal Article Type: Article
• Acceptance Date: Jan 20, 2017
• Online Publication Date: Jan 25, 2017
• Publication Date: Apr 30, 2017
• Deposit Date: Feb 9, 2017
• Publicly Available Date: Feb 9, 2017
• Journal: Economics Letters
• Print ISSN: 0165-1765
• Electronic ISSN: 1873-7374
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 153
• DOI: https://doi.org/10.1016/j.econlet.2017.01.021
• Keywords: Bargaining; Bertrand; Cournot; Two-part tariffs; Vertical pricing; Welfare
• Public URL: https://nottingham-repository.worktribe.com/output/857984
• Publisher URL: http://www.sciencedirect.com/science/article/pii/S0165176517300320
• Contract Date: Feb 9, 2017