Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Tuesday, January 11, 2011

Endogenous quality choice under upstream market power

Posted by D. Daniel Sokol

Borja Mesa Sánchez (Dpto. Fundamentos del Análisis Económico) describes Endogenous quality choice under upstream market power.

ABSTRACT: This paper analyzes how the existence of upstream market power affects endogenous quality choice in a setting where two downstream firms are locked in a bilateral monopoly with their own input suppliers. The main result is that the degree of product differentiation is reduced as upstream market power increases. This holds under Bertrand and Cournot competition, although differentiation is higher in the former. If competition takes place in a Cournot fashion and downstream firms have no bargaining power at all, they choose no differentiation. I also show the effects of an upstream and a downstream merger. When input suppliers merge to monopoly, the quality choice is not affected by the upstream market power and differentiation always emerges. When the downstream segment is shaped by a monopoly, goods become homogeneous unless input suppliers have weak bargaining power. If input prices are high enough before the downstream! merger, a downstream monopoly leads to an increase in social welfare.

http://lawprofessors.typepad.com/antitrustprof_blog/2011/01/endogenous-quality-choice-under-upstream-market-power.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0147e0b5e9e0970b

Listed below are links to weblogs that reference Endogenous quality choice under upstream market power:

Comments

Post a comment