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Complementary Monopolies and Bargaining

40 Pages Posted: 7 Jul 2016  

Date Written: June 8, 2016

Abstract

How should complementarities affect antitrust merger policy? I introduce a two-stage strategic model in which complementary input sellers offer supply schedules to producers and then engage in bilateral bargaining with producers. The main result is that there is a unique weakly dominant strategy equilibrium and the equilibrium attains the joint profit maximizing outcome. Output equals that of a bundling monopoly and total input prices are lower than prices with a bundling monopoly. The result holds with perfect competition in the downstream market. The result also holds with oligopoly competition in the downstream market. This implies that the Cournot Effect does not hold when companies negotiate supply contracts rather than using posted prices. The analysis has implications for antitrust policy towards vertical, conglomerate, and horizontal mergers.

Keywords: antitrust, complements, mergers, bargaining, supply schedules, contracts, competition, cooperation, Cournot Effect, monopoly

JEL Classification: C7, D4, L00, K10, K30

Suggested Citation

Spulber, Daniel F., Complementary Monopolies and Bargaining (June 8, 2016). Northwestern Law & Econ Research Paper No. 16-10. Available at SSRN: https://ssrn.com/abstract=2805523 or http://dx.doi.org/10.2139/ssrn.2805523

Daniel F. Spulber (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Kellogg Global Hub
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Evanston, IL 60208
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