Monopoly Supply Chain Management via Rubinstein Bargaining
| Authors | |
|---|---|
| Year of publication | 2011 |
| Type | Article in Proceedings |
| Conference | Proceedings of the 29th International Conference Mathematical Methods in Economics 2011 |
| MU Faculty or unit | |
| Citation | |
| Web | http://www.econ.muni.cz/~qasar/papers/KvasnickaStanekKrcalMME2011.pdf |
| Field | Economy |
| Keywords | vertical integration; double markup; Rubinstein bargaining; industrial organization; competition policy |
| Description | This paper argues that the Spengler’s (JPE, 1950) double-markup story does not capture the strategic situation faced by a monopoly supply chain. We show that 1) the Spengler’s double-markup model is equivalent to an extensive game in which the upstream monopoly has all power to set the intermediate price, and the downstream monopsony has no bargaining power. This assumption seems unrealistic. 2) We model this situation using the Rubinstein bargaining. The equilibrium of our model does not yield a double markup. Hence, the joint output, the consumers price, and the total profit is as high as those of a vertically integrated firm. Moreover, the profit is split roughly equally between the two firms. 3) Our model has different implications for the competition policy. |