Contract contingency in vertically related markets

Bacchiega, Emanuele ; Bonroy, Oliver ; Petrakis, Emmanuel (2016) Contract contingency in vertically related markets. Bologna: Dipartimento di Scienze economiche DSE, p. 33. DOI 10.6092/unibo/amsacta/5419. In: Quaderni - Working Paper DSE (1079). ISSN 2282-6483.
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Abstract

We study the optimal contract choice of an upstream monopolist producing an essential input that may sell to two vertically differentiated downstream firms. The upstream supplier can offer an exclusive contract to one of the firms or non-exclusive contracts to both firms. Each of the latter can be made contingent or not on the breakdown of the negotiations between the upstream supplier and the rival downstream firm. The distribution of bargaining power during the contract terms negotiations is the main driving force of the monopolist's choices. A powerful supplier always opts for an exclusive contract. By contrast, a weaker supplier offers non-exclusive contracts and makes each of them contingent or non-contingent such as to guarantee the most favorable outside option in its negotiations. Our main results hold under an horizontally differentiated downstream market too.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Bacchiega, EmanueleUniversità di Bologna0000-0002-7822-6486
Bonroy, Oliver
Petrakis, Emmanuel
Keywords
Vertical relationships, exclusive vs. non-exclusive relationships, contract contingency, two-part tariff, product differentiation
Subjects
ISSN
2282-6483
DOI
Deposit date
06 Oct 2016 12:28
Last modified
08 May 2017 14:23
URI

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