scholarly journals Downstream competition and profits under different input price bargaining structures

2021 ◽  
Author(s):  
Domenico Buccella ◽  
Luciano Fanti
Keyword(s):  
Social Welfare ◽  
Product Differentiation ◽  
Bargaining Power ◽  
Market Competition ◽  
Input Price ◽  
Downstream Competition ◽  
Decentralized Bargaining ◽  
Downstream Market ◽  
Counterintuitive Result

AbstractIn a vertically related duopoly with input price bargaining, this paper re-examines the downstream firms’ profitability under different market competition degrees. It is shown the rather counterintuitive result that downstream firms earn highest profits with semi-collusion, whose level depends on the upstream bargaining structures, the relative parties’ bargaining power, and the parameters measuring the degree of product differentiation in the downstream market. Concerning social welfare, the key result is that policymakers can tolerate some degree of collusion with decentralized bargaining structures; centralized structures advise for a more procompetitive policy.

Vertical Contract and Competition Intensity in Hotelling’s Model

2017 ◽  
Vol 19 (1) ◽  
Author(s):  
Xingtang Wang ◽  
Jie Li ◽  
Leonard F.S. Wang
Keyword(s):  
Social Welfare ◽  
Market Structure ◽  
Product Differentiation ◽  
Bargaining Power ◽  
Spatial Competition ◽  
Equilibrium Outcome ◽  
Competition Intensity ◽  
The Impact ◽  
Downstream Market ◽  
Vertical Market

AbstractThis paper explores the impact of intensity of rivalry in downstream market on the equilibrium locations of the downstream firms under a vertical market structure á la Hotelling. We find that: (i) the presence of upstream firms softens the spatial competition in downstream market; (ii) minimum differentiation cannot be achieved as the equilibrium outcome and the equilibrium product differentiation is insufficient relative to socially optimum; (iii) social welfare is higher with a higher weight attached to intensity of rivalry, which is different from the non-monotonic relationship under the horizontal market case; (iv) the equilibrium product differentiation is independent of bargaining power under the two-part tariff contracts, which is different from Brekke and Straume (2004) under linear pricing.

Managerial Delegation of Competing Vertical Chains with Vertical Externality

2020 ◽  
Vol 20 (2) ◽  
Author(s):  
Kangsik Choi ◽  
Ki-Dong Lee ◽  
Seonyoung Lim
Keyword(s):  
Cournot Competition ◽  
Incentive Contracts ◽  
Input Price ◽  
Prisoners Dilemma ◽  
Managerial Delegation ◽  
Decentralized Bargaining ◽  
Downstream Market

AbstractWe examine that the bilateral supplier affects the incentive contracts that owners of retailers offer their managers, assuming that the manufacturer sets the input price after observing the terms of the incentive contracts offered to management in the downstream market. Thus, we compare the two models: (1) decentralized bargaining between manufacturers and retailers including two-part tariff contract (2) linear input pricing without bargaining. Contrast to previous studies, we find that in equilibrium, the owners of retailers offer delegation contracts to managers for output restriction regardless of competition modes when offering linear input pricing, which implies that owners do not face a prisoners’ dilemma situation and Pareto superior profit is obtained for retailer. Thus, managerial delegation of retailer is not socially desirable due to the output restriction. Furthermore, decentralized bargaining allows to equalize all the equilibrium outcomes in the different delegation structure under both Bertrand and Cournot competition and leads no delegation for the endogenous delegation problem.

Location Choice of a Partially–Private Monopoly Supplier

2021 ◽  
pp. 232102222110321
Author(s):  
Doriani Lingga ◽  
Damiana Simanjuntak
Keyword(s):  
Product Differentiation ◽  
Location Choice ◽  
Unit Length ◽  
Profit Maximization ◽  
Market Segment ◽  
Input Price ◽  
High Type ◽  
Asymmetric Duopoly ◽  
Downstream Market ◽  
Jel Classifications

This paper analyzes the location choice of an upstream monopolist who supplies input to asymmetric duopoly firms in a downstream market. The monopolist is partially private, in that it cares not only about its profit maximization but also about the survival of the downstream firms. Based on the Hotelling model, we find that the monopolist is always attracted to locate closer to the efficient downstream firm. In particular, when the efficiency difference between the two downstream firms is not too high, such that no firm is driven out of the market, the monopolist locates at a distance of 1/6 from the efficient firm in the line segment of unit length. Finally, considering the downstream firms’ survival, we show that the upstream monopolist charges a higher input price on the efficient firm. This study may be relevant to the product differentiation framework, in which firms can benefit from producing goods that are close to the preference of high-type consumers; to the pharmaceutical industry, in which pharmacy companies must cover a broad market segment; or to the policymaking process, in which policymakers may have an incentive to make a policy preferred by a particular group of the society. JEL Classifications: D42, L12, L230

scholarly journals Capacity Choice and Government Regulation in a Vertical Industry

2020 ◽  
Vol 31 (5) ◽  
pp. 513-524
Author(s):  
Junlong Chen ◽  
Yajie Wang ◽  
Jiali Liu
Keyword(s):  
Social Welfare ◽  
Government Regulation ◽  
Market Competition ◽  
Excess Capacity ◽  
Market Demand ◽  
Government Failure ◽  
Regulatory Policies ◽  
The Social ◽  
Capacity Choice ◽  
The Government

This paper sets up an industry competition model consisting of two upstream enterprises and two downstream enterprises. Then we rely on the model to explore how non-regulation and different regulatory policies (maximizing the total profits of the upstream enterprises, the social welfare of the upstream industry or the overall social welfare) affect the following factors: the excess capacity, enterprise profits, consumer surpluses, social welfare in the upstream and downstream enterprises and the overall social welfare. The following conclusions are drawn from our research. First, whether and how the government regulates the capacity choice greatly affect the equilibrium outcomes, as well as the welfare distribution among the upstream enterprises, downstream enterprises, and consumers. The specific effects are dependent on market demand and enterprise cost. Second, the government should formulate its regulatory policies on capacity choice based on the overall social welfare of the entire supply chain. If the government aims to maximize the profits of the upstream enterprises, the social welfare of the downstream industry will be negatively affected. Third, excess capacity does not necessarily suppress social welfare. Under certain conditions, the worst scenario of excess capacity may occur under the pursuit of the maximal overall social welfare. Excess capacity may arise from various causes, rather than market competition or government regulation alone. Excess capacity cannot be attributed solely to government failure. These conclusions have some significance for optimizing capacity regulation policies.

Competitive Effects of Purchase-Based Targeted Advertising

2012 ◽  
Vol 10 (4) ◽  
pp. 71-84
Author(s):  
Jianqiang Zhang ◽  
Weijun Zhong ◽  
Shue Mei
Keyword(s):  
Social Welfare ◽  
Product Differentiation ◽  
Price Competition ◽  
Consumer Surplus ◽  
Consumer Information ◽  
Competitive Effects ◽  
Targeted Advertising ◽  
Consumer Valuation ◽  
Competitive Environments ◽  
Second Period

This paper develops a two-period sales model to investigate the competitive effects of purchase-based targeted advertising. In the model, two competing firms gain consumer information during the first period sales, which allows them to target advertising based on consumer purchase history. Advertising is assumed to be persuasive in terms of consumer valuation enhancing and product differentiation increasing. The authors find that the firm’s ability to target can damage industry profits, consumer surplus, and even social welfare. The conditions under which targeted advertising is positive or negative are derived, showing that price competition is softened in the second period but intensified in the first. It is suggested that firms under competitive environments cautiously sponsor targeted advertising with appropriate contents.

Attitudes toward Product Differentiation: A Social Utility Perspective

1987 ◽  
Vol 6 (1) ◽  
pp. 142-156 ◽  
Author(s):  
Patrick E. Murphy ◽  
Ben M. Enis ◽  
James H. Leigh
Keyword(s):  
Public Policy ◽  
Social Welfare ◽  
Product Differentiation ◽  
Social Utility ◽  
Staff Members

Product differentiation is examined from the perspectives of economics, marketing, and public policy. A proposed product differentiation hierarchy, using a social welfare method to determine importance of criteria, was tested by surveying FTC staff members, consumerists, and marketing practitioners. Results indicate that product differentiation is not a single concept that can be measured on a continuum, but rather is two separate areas that generally correspond to Chamberlin's original notion.

scholarly journals Can Centralization of Cancer Surgery Improve Social Welfare?

2012 ◽  
Vol 15 (2) ◽  
pp. 1-25 ◽  
Author(s):  
Vivian Ho ◽  
Marah N. Short ◽  
Meei-Hsiang Ku-Goto
Keyword(s):  
Pancreatic Cancer ◽  
Colon Cancer ◽  
Social Welfare ◽  
Market Competition ◽  
High Volume ◽  
Market Concentration ◽  
Cancer Surgery ◽  
Negative Consequences ◽  
Mortality Cost ◽  
Procedure Volume

Abstract The empirical association between high hospital procedure volume and lower mortality rates has led to recommendations for the centralization of complex surgical procedures. Yet redirecting patients to a select number of high-volume hospitals creates potential negative consequences for market competition. We use patient-level data to estimate the association between hospital procedure volume and patient mortality and costs. We also estimate the association between hospital market concentration and mortality, cost, and prices. We use our estimates to simulate the change in social welfare resulting from redirecting patients at low-volume hospitals to high-volume facilities. We find that a higher procedure volume leads to significant reductions in mortality for patients undergoing surgery for pancreatic cancer, but not colon cancer. Procedure volume also influences costs for both surgeries, but in a nonlinear fashion. Increased market concentration is associated with higher costs and prices for colon cancer, but not pancreatic cancer patients. Simulations indicated that centralizing pancreatic cancer surgery is unambiguously welfare enhancing. In contrast, there is less evidence to suggest that centralizing colon cancer surgery would be welfare improving.

scholarly journals Standard Setting with Considerations of Energy Efficiency Evolution and Market Competition

Complexity ◽  
2019 ◽  
Vol 2019 ◽  
pp. 1-21 ◽  
Author(s):  
Rui Dai ◽  
Jianxiong Zhang ◽  
Shichen Zhang
Keyword(s):  
Energy Efficiency ◽  
Social Welfare ◽  
Differential Game ◽  
Policy Maker ◽  
Environmental Performance ◽  
Market Competition ◽  
Consumer Welfare ◽  
Standard Setting ◽  
Stackelberg Differential Game ◽  
Optimal Reaction

EE (energy efficiency) level, an indispensable index reflecting the environmental performance of products, can be improved by the EE innovating effort of the producer. Considering both the evolution of EE level and market differentiation, we develop a Stackelberg differential game between a policy maker who sets the EE standard and multiple competing producers with different initial EE levels who decide the EE innovation simultaneously. As there exist numerous possible reactions for each producer under a given EE standard about whether to meet the EE standard or not, whether there exists an equilibrium is what we pay special attention to. We find that, under a given EE standard, there indeed exists a unique optimal reaction for each producer, and there exists an equilibrium. Moreover, we find that as green awareness or initial EE level increases, both the EE standard and EE innovation increase. Additionally, if policy maker pays more attention to consumer welfare and environmental performance rather than profit of producer, a more strict EE standard would be set. Also, both less information about the initial EE level and more competition among producers induce lower EE standard and social welfare.

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