Strategic Incentives When Supplying to Rivals With an Application to Vertical Firm Structure

41 Pages Posted: 28 Dec 2016

See all articles by Serge Moresi

Serge Moresi

Charles River Associates (CRA)

Marius Schwartz

Georgetown University

Date Written: October 10, 2016

Abstract

We consider a vertically integrated input monopolist supplying to a differentiated downstream rival. With linear input pricing, at the margin the firm unambiguously wants the rival to expand — unlike standard oligopoly with no supply relationship — for either Cournot or Bertrand competition. With a two‐part tariff for the input, the same result holds if downstream choices are strategic complements, but is reversed for Cournot with strategic substitutes. We analyze vertical delegation as one mechanism for inducing expansion or contraction by the rival/customer.

Keywords: Strategic Competition against Customers, Vertical Delegation

JEL Classification: L13, D43, L14, L22

Suggested Citation

Moresi, Serge and Schwartz, Marius, Strategic Incentives When Supplying to Rivals With an Application to Vertical Firm Structure (October 10, 2016). Available at SSRN: https://ssrn.com/abstract=2890503 or http://dx.doi.org/10.2139/ssrn.2890503

Serge Moresi

Charles River Associates (CRA) ( email )

1201 F Street, NW
Suite 700
Washington, DC 20004
United States
(202)662-3847 (Phone)

Marius Schwartz (Contact Author)

Georgetown University ( email )

Washington, DC 20057
United States
202-678-6112 (Phone)

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