Arbeitspapier
Upstream Partnerships among Competitors when Size Matters
In several industries downstream competitors form upstream partnerships. An important rationale is that higher aggregate upstream volume might generate efficiencies that reduce both fixed and marginal costs. Our focus is on the latter. We show that if upstream marginal costs are decreasing in sales volume, then a partnership between downstream rivals will make them less aggressive. However, a partnership might nonetheless induce both partners and non-partners to charge lower prices. We also show that it might be better for two firms to form a partnership and compete downstream than to merge. Somewhat paradoxically, this is true if they compete fiercely in the downstream market with a third firm. The reason is that a merger is de facto a commitment to set higher prices. Under aggressive competition from the third firm, the members will not want to make such a commitment when upstream marginal costs are decreasing in output.
- Language
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Englisch
- Bibliographic citation
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Series: CESifo Working Paper ; No. 6512
- Classification
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Wirtschaft
Microeconomic Behavior: Underlying Principles
- Subject
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upstream partnership
imperfect competition
endogenous marginal costs
- Event
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Geistige Schöpfung
- (who)
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Foros, Øystein
Kind, Hans Jarle
- Event
-
Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
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Munich
- (when)
-
2017
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Foros, Øystein
- Kind, Hans Jarle
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2017
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