Colluding through Suppliers

38 Pages Posted: 2 Apr 2012 Last revised: 5 Jul 2012

Salvatore Piccolo

Catholic University of the Sacred Heart of Milan

Jeanine Miklós-Thal

University of Rochester - Simon Business School

Multiple version iconThere are 2 versions of this paper

Date Written: May 19, 2012

Abstract

This article investigates downstream firms' ability to collude in a repeated game of competition between supply chains. We show that downstream firms with buyer power can collude more easily in the output market if they also collude on their input supply contracts. More specifically, an implicit agreement on input supply contracts with above-cost wholesale prices and negative fixed fees (that is, slotting fees) facilitates collusion on downstream prices. Banning slotting fees or information exchange about wholesale prices decreases the scope for collusion. Moreover, high downstream prices are more difficult to sustain if upstream rather than downstream firms make contract offers.

Keywords: collusion, vertical contracting, slotting fees, buyer power, information exchange

JEL Classification: D21, D43, L42

Suggested Citation

Piccolo, Salvatore and Miklós-Thal, Jeanine, Colluding through Suppliers (May 19, 2012). Simon School Working Paper No. FR 12-07. Available at SSRN: https://ssrn.com/abstract=2033242 or http://dx.doi.org/10.2139/ssrn.2033242

Salvatore Piccolo

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Jeanine Miklós-Thal (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

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