Thursday, June 14, 2012
Posted by D. Daniel Sokol
Salvatore Piccolo, University of Naples Federico II Jeanine Miklos-Thal, University of Rochester - Simon Graduate School of Business Colluding through Suppliers.
ABSTRACT: In this paper, we investigate downstream firms' ability to collude in a repeated game of competition between supply chains. We demonstrate that downstream firms with buyer power can collude more easily in the output market if they also collude on their input supply contracts. More specifically, we show that an implicit agreement on input supply contracts with above-cost wholesale prices and negative fixed fees (that is, slotting fees) facilitates collusion on downstream prices. A ban on slotting fees decreases the scope for downstream collusion, as does a ban on information exchange about input supply contracts. We also show that high downstream prices are more difficult to sustain if upstream instead of downstream firms make contract offers.