Download This PaperAuctions vs. Negotiations in Vertically Related Markets
Quaderni - Working Paper DSE N° 1145
13 Pages Posted: 30 Apr 2020
Date Written: April 3, 2020
Abstract
In a two-tier industry with bottleneck upstream and two downstream firms producing vertically differentiated goods, we identify conditions under which the upstream supplier chooses exclusive or non-exclusive negotiations, or an English auction to sell its essential input. Auctioning off a two-part tariff contract is optimal for the supplier when its bar- gaining power is low and the final goods are not too differentiated. Otherwise, the supplier enters into exclusive or non-exclusive negotiations with the downstream firm(s). Finally, in contrast to previous findings, an auction is never welfare superior to negotiations.
Keywords: Vertical relationships, exclusive vs. non-exclusive relationships, auctions
JEL Classification: D43, L13, L14
Suggested Citation: Suggested Citation