López Cuñat, Javier M. and J. Sandonís
The Singapore Economic Review – 63-3 (2018), 619-627
Keywords: Dominant upstream firm, Downstream competition, Two-part tariff contracts
Abstract: We show in this paper that a dominant supplier, under observable two-part tariff contracts and an alternative, less efficient supply of the input, could benefit from more intense competition downstream provided that it has strong enough market power upstream. This implies that the incentives of upstream suppliers to foreclose downstream firms are less important than the previous literature had suggested. In fact, we find that the result also holds under observable linear contracts when we consider free entry in the downstream market.