Olivier Bonroy (Universitè Grenoble Alpes & INRA GAEL) on "Contract contingency in vertically related markets"

Speaker:  Olivier Bonroy - Universitè Grenoble Alpes & INRA GAEL
  Wednesday, March 16, 2016 at 12:30 PM Polo Santa Marta, Via Cantarane 24, Stanza 1.59
In this paper we analyze the optimal behavior of an upstream monopolist that produces an input that is necessary to two downstream firms, which use it to produce variants of a vertically differentiated commodity. The upstream producer may enter an exclusive relationship with one downstream firm only or sign non-exclusive contracts with both, in which case it may decide whether to offer contingent or non-contingent contracts. Contingent contracts may contain terms that are finalized, within bargaining pair, in the occurrence the negotiation in the other pair irreversibly breaks down. Non-contingent contracts cannot contain such clauses. Once decided the contract characteristics, the actual contractual terms are set through secret negotiations between the upstream and downstream firm(s) through the generalized Nash bargaining solution. We show that when the upstream firm has a "high" bargaining power it prefers an exclusive contract with the high-quality producer. By contrast, for lower bargaining weights, it selects non-exclusive contracts. In particular, for "intermediate" bargaining power it prefers contingent contracts, while for "low" bargaining power it prefers non-contingent contracts.
Joint work with Emanuele Bacchiega and Emmanuel Petrakis
Documents
Title Format  (Language, Size, Publication date)
Paper  pdfpdf (en, 830 KB, 15/03/16)

Programme Director
Angelo Zago

External reference
Luigi Grossi

Publication date
January 4, 2016

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