Auctions vs. negotiations in vertically related markets Articles uri icon

publication date

  • July 2020

start page

  • 1

end page

  • 4

volume

  • 192

International Standard Serial Number (ISSN)

  • 0165-1765

Electronic International Standard Serial Number (EISSN)

  • 1873-7374

abstract

  • In a two-tier industry with bottleneck upstream and two downstream firms producing verticallydifferentiated goods, we identify conditions under which the upstream supplier chooses exclusive ornon-exclusive negotiations, or an English auction to sell its essential input. Auctioning off a two-parttariff contract is optimal for the supplier when its bargaining power is low and the final goods are nottoo differentiated. Otherwise, the supplier enters into exclusive or non-exclusive negotiations with the downstream firm(s). Finally, in contrast to previous findings, an auction is never welfare superior tonegotiations.

keywords

  • vertical relationships; exclusive vs. non-exclusive relationships; auctions