Downstream Mode of Competition With Upstream Market Power

Abstract

In contrast with previous studies we assume no ex-ante commitment over the �price or quantity� type of contract which downstream firms will independently offer consumers in a two-tier oligopoly. Under competing vertical chains, we propose that the downstream mode of competition which in equilibrium emerges is the outcome of independent implicit agreements, between each downstream firm and its exclusive input supplier, in each vertical chain. Our findings suggest that input suppliers may thus act as commitment devices sufficient to endogenously sustain the quantity (Cournot) mode of competition.Oligopoly; Vertical relations; Wholesale prices; Equilibrium mode of competition