Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149309
Authors: 
Basak, Debasmita
Mukherjee, Arijit
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 6222
Abstract: 
In a recent paper, Alipranti et al. (2014, Price vs. quantity competition in a vertically related market, Economics Letters, 124: 122-126) show that in a vertically related market Cournot competition yields higher social welfare compared to Bertrand competition if the upstream firm subsidises the quantity setting downstream firm’s production via negative wholesale input prices. However, the assumption of negative input prices is not economically viable as it would encourage the downstream firms to buy an unbounded amount of inputs knowing that the upstream firm would pay the downstream firms for each unit of input they purchase. We show that the welfare ranking may be reversed once we introduce a nonnegativity constraint on the input price.
Subjects: 
bargaining
Bertrand
Cournot
two-part tariffs
vertical pricing
welfare
JEL: 
D43
L13
L14
Document Type: 
Working Paper

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