A Model of Vertical Oligopolistic Competition
WHU - Otto Beisheim School of Management; CESifo (Center for Economic Studies and Ifo Institute)
University of Munich - Department of Economics; Centre for Economic Policy Research (CEPR)
This paper develops a model of successive oligopolies with endogenous market entry, allowing for varying degrees of product differentiation and entry costs in both markets. Our analysis shows that the downstream conditions dominate the overall profitability of the two-tier structure while the upstream conditions mainly affect the distribution of profits. We compare the welfare effects of upstream versus downstream deregulation policies and show that the impact of deregulation may be overvalued when ignoring feedback effects from the other market. Furthermore, we analyze how different forms of vertical restraints influence the endogenous market structure and show when they are welfare enhancing.
Number of Pages in PDF File: 47
Keywords: Deregulation, Free Entry, Price Competition, Product Differentiation, Successive Olipopolies, Two-Part Tariffs, Vertical Restraints
JEL Classification: L13, D43, L40, L50
Date posted: April 9, 2008