Price and Quantity Competition in a Differentiated Duopoly with Upstream Suppliers

37 Pages Posted: 11 May 2007

Abstract

This paper analyzes the noncooperative game on the choice of strategic variable to set in duopoly in the presence of an upstream market for the input. For the case of labor input, the analysis shows that if the wage is the result of decentralized firm-union bargain, a duopoly producing substitutes may choose to compete either in the quantity space or in the price space, depending upon the distribution of bargaining power in the wage negotiation and the union's relative preference over the wage. For the case of input suppliers as profit-maximizing firms, the paper shows that a vertically differentiated duopoly may prefer to compete either in the quantity space or in a mixed strategy setting where the high-quality firm plays price and the low-quality firm plays quantity, depending upon the extent of substitutability, the degree of vertical product differentiation and the distribution of bargaining power in the input price negotiation.

Suggested Citation

Correa-López, Mónica, Price and Quantity Competition in a Differentiated Duopoly with Upstream Suppliers. Journal of Economics & Management Strategy, Vol. 16, No. 2, pp. 469-505, Summer 2007, Available at SSRN: https://ssrn.com/abstract=986024 or http://dx.doi.org/10.1111/j.1530-9134.2007.00146.x

Mónica Correa-López (Contact Author)

Banco de España ( email )

Alcala 50
28014 Madrid
Spain

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