Universidad de Chile, Facultad de Economía y Negocios
Abstract
We set up a model where two retailers compete downstream and buy their
inputs from a single producer. Retailers may collude downstream, when
fixing the retail price and cooperate upstream by jointly negotiating the
wholesale price with the producer. We find that purchase cooperation
renders downstream collusion more likely. First it expands the range of
differentiation where downstream collusion is a profitable strategy. Second
it makes more stable the agreement downstream since the punishment
becomes harsher due to the increase in the wholesale price coming from the
breakdown of common upstream negotiation. The results are robust to a
scenario of upstream price rigidity where the wholesale price cannot be
immediately renegotiated after a deviation downstream has occurred
