Issue: Spring 1997
Pages: pp. 37-62
Authors: Kai-Uwe Kuhn
Title: Nonlinear Pricing in Vertically Related Duopolies
Abstract: A vertically separated duopolistic market is analyzed in which manufacturers compete in wholesale price schedules and retailers in quantity. Under certainty there exists a continuum of equilibria. The introduction of an uncertain demand parameter, observed only by retailers, dramatically reduces the set of equilibria. Quantity discounts emerge in markets with only moderately decreasing returns to scale in manufacturing (and quantity competition downstream). With additive shocks to demand the equilibria coincide with those of markets in which vertically integrated firms compete in supply functions before market uncertainty is resolved. However, generically equilibria in my model are not supply function equilibria.
Market Structure, Firm Strategy, and
Market Performance: Oligopoly and Other Imperfect Markets; monopolistic
competition; contestable markets (L130)
Firm Organization and Market
Structure: Markets vs. Hierarchies; Vertical Integration (L220)
Microeconomics--Theory of Firm and Industry under
Imperfectly Competitive Market Structures (0226)
Market Structure:
Industrial Organization and Corporate Strategy (6110)