Price Versus Quantity Competition in a Vertically Related Market with Retailer’s Effort
-
Qian Liu
Abstract
Allowing downstream retailers to engage in demand-enhancing investment, this paper demonstrates that the classical conclusions regarding the comparison of Cournot and Bertrand competition in a vertically related market with decentralized bargaining are completely reversed. It shows that Bertrand competition is more efficient than Cournot competition, in the sense that both consumer surplus and social welfare are always higher in the former.
Funding source: Guangdong Province Soft Science Research Project
Award Identifier / Grant number: 2019A101002056
Acknowledgments
We are very grateful to the editor, Ronald Peeters and the two anonymous reviewers for their insightful remarks and constructive suggestions. Qian Liu gratefully acknowledges the financial support of the Guangdong Province Soft Science Research Project (2019A101002056).
We provide more detailed proofs of the propositions in this paper. Note that the following analyses are performed on the basis of Assumption 1, i.e.,
A-1: Proof of Proposition 1
A-2: Proof of Proposition 2
where
A-3: Proof of Proposition 3
where
A-4: Proof of Proposition 4
where
Combining the parameter range assumed by Assumption 1, we can find that the sigh of above expression mainly depends on the degree of product differentiation, i.e.,
A-5: Proof of Proposition 5
where
References
Alipranti, M., C. Milliou, and E. Petrakis. 2014. “Price vs. Quantity Competition in a Vertically Related Market.” Economics Letters 124: 122–6. https://doi.org/10.1016/j.econlet.2014.05.002.Suche in Google Scholar
Basak, D., and A. Mukherjee. 2017. “Price vs. Quantity Competition in a Vertically Related Market Revisited.” Economics Letters 153: 12–4. https://doi.org/10.1016/j.econlet.2017.01.021.Suche in Google Scholar
Basak, D., and L. F. S. Wang. 2016. “Endogenous Choice of Price or Quantity Contract and the Implications of Two-Part-Tariff in a Vertical Structure.” Economics Letters 138: 53–6. https://doi.org/10.1016/j.econlet.2015.11.026.Suche in Google Scholar
Berto Villa-Boas, S. 2007. “Vertical Relationships Between Manufacturers and Retailers: Inference with Limited Data.” The Review of Economic Studies 74: 625–52. https://doi.org/10.1111/j.1467-937X.2007.00433.x.Suche in Google Scholar
Björnerstedt, J., and J. Stennek. 2007. “Bilateral Oligopoly – The Efficiency of Intermediate Goods Markets.” International Journal of Industrial Organization 25: 884–907. https://doi.org/10.1016/j.ijindorg.2007.06.001.Suche in Google Scholar
Bonanno, G., and B. Haworth. 1998. “Intensity of Competition and the Choice Between Product and Process Innovation.” International Journal of Industrial Organization 16: 495–510. https://doi.org/10.1016/s0167-7187(97)00003-9.Suche in Google Scholar
Bonnet, C., and P. Dubois. 2010. “Inference on Vertical Contracts Between Manufacturers and Retailers Allowing for Nonlinear Pricing and Resale Price Maintenance.” The RAND Journal of Economics 41: 139–64. https://doi.org/10.1111/j.1756-2171.2009.00093.x.Suche in Google Scholar
Chirco, A., and M. Scrimitore. 2013. “Choosing Price or Quantity? The Role of Delegation and Network Externalities.” Economics Letters 121: 482–6. https://doi.org/10.1016/j.econlet.2013.10.003.Suche in Google Scholar
Correa-López, M., and R. A. Naylor. 2004. “The Cournot–Bertrand Profit Differential: A Reversal Result in a Differentiated Duopoly with Wage Bargaining.” European Economic Review 48: 681–96. https://doi.org/10.1016/s0014-2921(02)00326-4.Suche in Google Scholar
Delbono, F., and V. Denicolò. 1990. “R&D Investment in a Symmetric and Homogeneous Oligopoly.” International Journal of Industrial Organization 8: 297–313. https://doi.org/10.1016/0167-7187(90)90022-s.Suche in Google Scholar
Economist. 2000. B2B Exchanges: The Container Case, 93–4. The Economist (October 21st).Suche in Google Scholar
Gabrielsen, T. S., and B. O. Johansen. 2013. The Opportunism Problem Revisited: The Case of Retailer Sales Effort. Norway: Mimeo. Department of Economics, University of Bergen.Suche in Google Scholar
Mukherjee, A. 2011. “Competition, Innovation and Welfare.” The Manchester School 79: 1045–57. https://doi.org/10.1111/j.1467-9957.2010.02184.x.Suche in Google Scholar
Mukherjee, A., U. Broll, and S. Mukherjee. 2012. “Bertrand Versus Cournot Competition in a Vertical Structure: A Note.” The Manchester School 80: 545–59. https://doi.org/10.1111/j.1467-9957.2012.02228.x.Suche in Google Scholar
Qiu, L. D. 1997. “On the Dynamic Efficiency of Bertrand and Cournot Equilibria.” Journal of Economic Theory 75: 213–29. https://doi.org/10.1006/jeth.1997.2270.Suche in Google Scholar
Reynolds, S. S., and R. M. Isaac. 1992. “Stochastic Innovation and Product Market Organization.” Economic Theory 2: 525–45. https://doi.org/10.1007/bf01212475.Suche in Google Scholar
Singh, N., and X. Vives. 1984. “Price and Quantity Competition in a Differentiated Duopoly.” The RAND Journal of Economics 15: 546–54. https://doi.org/10.2307/2555525.Suche in Google Scholar
Symeonidis, G. 2003. “Comparing Cournot and Bertrand Equilibria in a Differentiated Duopoly with Product R&D.” International Journal of Industrial Organization 21: 39–55. https://doi.org/10.1016/s0167-7187(02)00052-8.Suche in Google Scholar
Wang, X., and J. Li. 2020. “Downstream Rivals’ Competition, Bargaining, and Welfare.” Journal of Economics 131: 61–75. https://doi.org/10.1007/s00712-018-0644-y.Suche in Google Scholar
Wirl, F. 2015. “Downstream and Upstream Oligopolies when Retailer’s Effort Matters.” Journal of Economics 116: 99–127. https://doi.org/10.1007/s00712-015-0443-7.Suche in Google Scholar
Yoshida, S. 2018. “Bargaining Power and Firm Profits in Asymmetric Duopoly: An Inverted-U Relationship.” Journal of Economics 124: 139–58. https://doi.org/10.1007/s00712-017-0563-3.Suche in Google Scholar
© 2022 Walter de Gruyter GmbH, Berlin/Boston
Artikel in diesem Heft
- Frontmatter
- Research Articles
- On the Microfoundation of Linear Oligopoly Demand
- Uncertain Outcomes and Climate Change Policy Using an Expo-Power Utility Function
- Price Versus Quantity Competition in a Vertically Related Market with Retailer’s Effort
- Search Costs and Wage Inequality
- Product Differentiation in a Vertical Structure
- Corporate Profit Tax and Strategic Corporate Social Responsibility Under Foreign Acquisition
- Examining the Impact of Electoral Competition and Endogenous Lobby Formation on Equilibrium Policy Platforms
- Entry Deterrence and Free Riding in License Auctions: Incumbent Heterogeneity and Monotonicity
- When is Knowledge Acquisition Socially Beneficial in the Laffont–Tirole Regulatory Framework?
- Notes
- Long-Run Growth, Speed of Convergence and the Specification of Technology
- Working Time under Alternative Pay Contracts in the Ride-Sharing Industry
- Tacit Collusion with Consumer Preference Costs
- Competitively-Issued Convertible Bank Notes in a Theory of Finance: Earl Thompson Meets Fischer Black
Artikel in diesem Heft
- Frontmatter
- Research Articles
- On the Microfoundation of Linear Oligopoly Demand
- Uncertain Outcomes and Climate Change Policy Using an Expo-Power Utility Function
- Price Versus Quantity Competition in a Vertically Related Market with Retailer’s Effort
- Search Costs and Wage Inequality
- Product Differentiation in a Vertical Structure
- Corporate Profit Tax and Strategic Corporate Social Responsibility Under Foreign Acquisition
- Examining the Impact of Electoral Competition and Endogenous Lobby Formation on Equilibrium Policy Platforms
- Entry Deterrence and Free Riding in License Auctions: Incumbent Heterogeneity and Monotonicity
- When is Knowledge Acquisition Socially Beneficial in the Laffont–Tirole Regulatory Framework?
- Notes
- Long-Run Growth, Speed of Convergence and the Specification of Technology
- Working Time under Alternative Pay Contracts in the Ride-Sharing Industry
- Tacit Collusion with Consumer Preference Costs
- Competitively-Issued Convertible Bank Notes in a Theory of Finance: Earl Thompson Meets Fischer Black
