Strategic incentives when supplying to rivals with an application to vertical firm structure |
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| Affiliation: | 1. Charles River Associates, Inc., Washington DC 20004, United States;2. Department of Economics, Georgetown University, Washington DC 20057, United States;1. Università di Napoli Federico II and CSEF, Italy;2. University of Bergamo and CSEF, Italy;1. Faculdade de Ciências e Tecnologia, Universidade Nova de Lisboa, Portugal;2. New York University, United States;3. CEPR, United Kingdom;4. Faculdade de Economia, Universidade do Porto, Portugal;5. CEFAGE-FCT/UNL;6. Center for Economics and Finance, Universidade do Porto, Portugal |
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| Abstract: | We consider a vertically integrated input monopolist supplying to a differentiated downstream rival. With linear input pricing, at the margin the firm unambiguously wants the rival to expand—unlike standard oligopoly with no supply relationship—for either Cournot or Bertrand competition. With a two-part tariff for the input, the same result holds if downstream choices are strategic complements, but is reversed for Cournot with strategic substitutes. We analyze vertical delegation as one mechanism for inducing expansion or contraction by the rival/customer. |
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