Thursday, October 27, 2016
Kentaro Inomata, Competition Policy, Japan Fair Trade Commission examines Profitable Competition.
ABSTRACT: This paper investigates the profitability of a decrease in the degree of product differentiation in vertical relations. We consider the multiproduct duopoly model with vertical relations and obtain three results in both Cournot and Bertrand: i) if each downstream firm procures multiple products from independent upstream firms, both downstream firms may increase profits from a decrease in the degree of product differentiation due to the larger amount of alleviation of double marginalization than the single-product firm case. Also, ii) upstream firms can increase their profits as the degree of product differentiation decreases when they take place intra-brand mergers. In that case, the welfare level is lower when upstream competition exists than when there is no competitor. Finally, iii) an efficient firm loses its benefit as the degree of product differentiation decreases while the inefficient firm may increase its profit. It contrasts with Zanchettin (2006).