Nonlinear Pricing in Vertically Related Duopolies

RAND JOURNAL OF ECONOMICS, Vol. 28, No. 1

Posted: 26 Feb 1997

See all articles by Kai-Uwe Kuhn

Kai-Uwe Kuhn

University of East Anglia (UEA) - Centre for Competition Policy; Centre for Economic Policy Research (CEPR)

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.

JEL Classification: L13, D43

Suggested Citation

Kuhn, Kai-Uwe, Nonlinear Pricing in Vertically Related Duopolies. RAND JOURNAL OF ECONOMICS, Vol. 28, No. 1, Available at SSRN: https://ssrn.com/abstract=4688

Kai-Uwe Kuhn (Contact Author)

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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