Monday, October 27, 2014
Stephane Caprice, Toulouse School of Economics, Vanessa von Schlippenbach, DIW and Christian Wey, DICE theorize on Supplier Fixed Costs and Retail Market Monopolization.
ABSTRACT: Considering a vertical structure with perfectly competitive upstream firms that deliver a homogenous good to a differentiated retail duopoly, we show that upstream fixed costs may help to monopolize the downstream market. We find that downstream prices increase in upstream firms' fixed costs when both intra- and interbrand competition exist. Our findings contradict the common wisdom that fixed costs do not affect market outcomes.