Buying power and strategic interactions

This paper shows that buying power at the retail level can lead to a rise in wholesale price. As a result, retailers without buying power may increase their retail price. Nevertheless, total surplus is non-decreasing in the degree of buying power possessed by the `dominant' retailer.

Rebates as incentives to exclusivity

We show how rebates (or fidelity discounts) that take the form of lump-sum payments made to retailers can be used by an incumbent manufacturer to achieve exclusivity and to deter the entry of a more efficient rival. The results, which hold whatever the degree of differentiation between retailers and whatever the cost advantage of the entrant, are found, despite minimizing asymmetries that may favour the incumbent. As such, there is no need to introduce buyers' disorganization, discriminatory offers, economies of scale, non-coincident markets, or liquidated damages to find that exclusivity can lead to anti-competitive effects.

Price Tests to Define Markets: An Application to Wholesale Gasoline in Canda

The concept of relevant markets is fundamental to antitrust analysis, particularly to those relating to mergers. However, defining relevant markets is sometimes difficult ot operationalize. This has triggered a substantial literature in which price tests have been used to define both economic and antitrust markets. This paper reviews some price tests and applies them in order to define relevant geographic markets in wholesale gasoline in Canada. We find that relevant geographic markets can be larger than cities but smaller than East and West Canada. Copyright Springer Science + Business Media, Inc. 2005market definition, price correlation, Granger causality,

Licensing a technological headstart

We examine how investment possibilities by licensees and nonlicensees affect the two-part licensing contracts offered by an innovator not participating in a homogeneous good oligopolistic market. By undertaking some investments after the decision to accept or reject the licensing contract, licensees and nonlicensees can decrease their marginal production cost. However, the innovation provides a technological headstart in the continuing process of marginal cost improvement. We find that the two-part equilibrium contracts can be of three types: (i) a fixed fee contract such that all firms become licensees; (ii) a fixed fee contract such that the number of licensees is smaller than the number of firms in the market; and, (iii) a contract that specifies a positive royalty rate and a fixed fee such that all firms become licensees.licensing, headstart, investment, contracts,

Licensing a new product with non-linear contracts

This paper looks at a situation where a licensor owns a patent on a technology that allows the production of a new good. The licensor seeks to license its innovation to a set of producers that differ according to their marginal cost of producing an existing good. We show that the licensor is able to obtain the profit a monopolist would achieve by producing the new good. The equilibrium licensing contract specifies both a fixed fee and a royalty scheme based on the production of a licensee.

Optimal Licensing Contracts and the Value of a Patent

"We extend Kamien and Tauman's (1986) analysis of the value of a patent. We find that an inventor can always design a fixed fee plus royalty contract such that his revenue is equal to the profit a monopoly endowed with the innovation could make on the market. This implies that the social value of a patent can be strictly negative whenever the patented innovation is of bad quality. We also explain why a principal can have an interest in using performance-based contracts although the principal and the agents are risk-neutral, information is symmetric, and agents' actions are verifiable." Copyright 2007, The Author(s) Journal Compilation (c) 2007 Blackwell Publishing.