Vertical Contracts and Entry

27 Pages Posted: 10 Sep 2020 Last revised: 12 Sep 2020

See all articles by Chrysovalantou Milliou

Chrysovalantou Milliou

Athens University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Emmanuel Petrakis

University of Crete - Department of Economics

Date Written: September 1, 2020

Abstract

We study the implications of different contractual forms in a market with an incumbent upstream monopolist and free downstream entry. We show that traditional conclusions regarding the desirability of linear contracts radically change when entry in the downstream market is endogenous rather than exogenous. By triggering more entry than two-part tariffs, wholesale price contracts can generate higher aggregate output, consumer surplus, and welfare. In light of this, the upstream monopolist may prefer to trade with wholesale price contracts as well as to give up part of its bargaining power when it is high.

Keywords: vertical contracting; downstream entry; two-part tariffs; wholesale price contracts; bargaining

JEL Classification: D43; L11; L14; L22; L42; L81

Suggested Citation

Milliou, Chrysovalantou and Petrakis, Emmanuel, Vertical Contracts and Entry (September 1, 2020). Available at SSRN: https://ssrn.com/abstract=3685117 or http://dx.doi.org/10.2139/ssrn.3685117

Chrysovalantou Milliou

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Emmanuel Petrakis (Contact Author)

University of Crete - Department of Economics ( email )

GR-74100 Rethymnon, GR-74100
Greece
+30 28310 77409 (Phone)
+30 28310 77406 (Fax)

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