Colluding through Suppliers
38 Pages Posted: 2 Apr 2012 Last revised: 5 Jul 2012
Date Written: May 19, 2012
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: Suggested Citation