Supplier Fixed Costs and Retail Market Monopolization

24 Pages Posted: 17 Sep 2014

See all articles by Stephane Caprice

Stephane Caprice

University of Toulouse 1 - Toulouse School of Economics (TSE)

Vanessa von Schlippenbach

German Institute for Economic Research (DIW Berlin)

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE)

Date Written: July 2014

Abstract

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

Caprice, Stephane and Schlippenbach, Vanessa von and Wey, Christian, Supplier Fixed Costs and Retail Market Monopolization (July 2014). DIW Berlin Discussion Paper No. 1408, Available at SSRN: https://ssrn.com/abstract=2496829 or http://dx.doi.org/10.2139/ssrn.2496829

Stephane Caprice (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Vanessa von Schlippenbach

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany
+49-211-81-15009 (Phone)
+49-211-81-15499 (Fax)

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