Successive Oligopolies with Differentiated Firms and Endogeneous Entry
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)
The Journal of Industrial Economics, Vol. 60, Issue 4, pp. 537-577, 2012
We develop a model of successive oligopolies with endogenous entry, allowing for varying degrees of product differentiation and entry costs in both markets. We show that downstream conditions dominate the overall profitability of the two‐tier structure while upstream conditions mainly affect the distribution of profits. We analyze how two‐part tariffs and resale price maintenance shape the endogenous market structure and study their welfare effects. In contrast to previous literature, we find that welfare under linear prices can be larger than under twopart tariffs although the latter avoids double marginalization. This is because linear prices induce more downstream market entry.
Number of Pages in PDF File: 41
Date posted: December 23, 2012