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Nonlinear Pricing in Vertically Related Duopolies

Kai-Uwe Kühn
The RAND Journal of Economics
Vol. 28, No. 1 (Spring, 1997), pp. 37-62
Published by: Wiley on behalf of RAND Corporation
Stable URL: http://www.jstor.org/stable/2555939
Page Count: 26
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Nonlinear Pricing in Vertically Related Duopolies
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Abstract

A vertically separated duopolistic market is analyzed in which manufacturers compete in wholesale price schedules and retailers in quantity. Under certainty there exists a continuum of equilibria. The introduction of an uncertain demand parameter, observed only by retailers, dramatically reduces the set of equilibria. Quantity discounts emerge in markets with only moderately decreasing returns to scale in manufacturing (and quantity competition downstream). With additive shocks to demand, the equilibria coincide with those of markets in which vertically integrated firms compete in supply functions before market uncertainty is resolved. However, generically equilibria in my model are not supply function equilibria.

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