Supplier Fixed Costs and Retail Market Monopolization
24 Pages Posted: 17 Sep 2014
Date Written: July 2014
Considering a vertical structure with perfectly competitive upstream firms that deliver a homogenous good to a differentiated retail duopoly, we show that upstream fixed costs may help to monopolize the downstream market. We find that downstream prices increase in upstream firms' fixed costs when both intra- and interbrand competition exist. Our findings contradict the common wisdom that fixed costs do not affect market outcomes.
Keywords: Fixed costs, vertical contracting, monopolization
JEL Classification: L13, L14, L42
Suggested Citation: Suggested Citation