The downstream competition effect in bilateral oligopolies : A structural bargaining approach with limited data

Céline Bonnet's webpage

The downstream competition effect in bilateral oligopolies : A structural bargaining approach with limited data

Abstract: In bilateral oligopolies, firms act strategically on both side of the market, leading to complex vertical relationships in many industries. The objective of this paper is to assess the effect of the downstream competition on bargaining and market power of upstream and downstream firms. Using a homescan dataset on soft drink purchases, we develop an empirical model of demand and supply which allows us to estimate the bargaining power of firms, their margins, and the sharing of industry profits. Through counterfactual simulations, we then investigate the effects of reducing downstream competition on the equilibrium wholesale tariffs, retail prices and total welfare.