On the Welfare Effect of Uniform Input Pricing with Endogenous Choices of Channel Structure by Downstream Firms

Pp: 162-197 (36)

* (Excluding Mailing and Handling)

Abstract

We study a vertical market in which the upstream input market is monopolized and the downstream is composed of a Cournot oligopoly. The downstream firms also choose their internal channel structures strategically. Two main points are made. First, uniform pricing by the monopoly input supplier leads to higher total welfare than under discriminatory pricing. Second, uniform pricing is more profitable than price discrimination for the monopoly input supplier.

Keywords: Centralized channel, channel structure, Cournot oligopoly, decentralized channel, downstream firms, input price discrimination, monopoly input supplier, subgame perfect Nash equilibrium, upstream input market, vertical market.