On Intrabrand and Interbrand Competition: The Strategic Role of Fees and Royalties

Duke Economics Working Paper No. 99-06

Posted: 27 Apr 2000

See all articles by Kamal Saggi

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics

Nikolaos Vettas

Athens University of Economics and Business - Department of Economics; National and Kapodistrian University of Athens - Faculty of Economics; Centre for Economic Policy Research (CEPR)

Abstract

We examine oligopolistic markets with both intrabrand and interbrand competition. We characterize equilibrium contracts involving a royalty (or wholesale price) and a fee when each upstream firm contracts with multiple downstream firms. Royalties control competition between own downstream firms at the expense of making them passive against rivals. The main result is that, when we endogenize the number of downstream firms, each upstream firm chooses to have only one downstream firm. This result is in sharp contrast to previous literature where competitors benefit by having a larger number of independent downstream firms under only fixed fee payments. We discuss how allowing for contracts that involve both fees and per-unit payments dramatically alters the strategic incentives.

JEL Classification: L13, L14, L22, L42

Suggested Citation

Saggi, Kamal and Vettas, Nikolaos, On Intrabrand and Interbrand Competition: The Strategic Role of Fees and Royalties. Duke Economics Working Paper No. 99-06, Available at SSRN: https://ssrn.com/abstract=164808

Kamal Saggi (Contact Author)

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-3274 (Phone)
214-768-1821 (Fax)

Nikolaos Vettas

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+30 210 8203179 (Phone)

National and Kapodistrian University of Athens - Faculty of Economics ( email )

8 Pesmazoglou street
GR-10559 Athens
Greece
+30 210 8203179 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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