Philippe Bontems (Toulouse School of Economics) on "Oligopoly Intermediation, Relative Rivalry and Market Conduct"

We consider two firms that compete against each other jointly in upstream
and downstream markets under two pricing games: Purchasing to stock (PTS),
in which firms select input prices prior to setting consumer prices; and purchasing
to order (PTO), in which firms sell forward contracts to consumers prior
to selecting input prices. The antitrust implications of the model depend on
the relative degree of oligopoly rivalry in the upstream and downstream markets.
Firms strategically precommit to setting prices in the less rivalrous market,
which serves to soften price competition in the more rivalrous market, resulting
in higher margins and anticompetitive effects. Bertrand prices emerge in equilibrium
when the markets are equally rivalrous, while Cournot outcomes arise
with upstream monopsony or downstream monopoly markets. The slope of firm
reaction functions depends on relative rivalry, resulting in testable hypotheses
for antitrust analysis of a wide variety of industry practices.