Downstream competition and profits under different input price bargaining structures

Abstract In a vertically related duopoly with input price bargaining, this paper re-examines the downstream firms’ profitability under different market competition degrees. It is shown rather counterintuitive result that firms earn highest profits semi-collusion, whose level depends on upstream bargaining structures, relative parties’ power, and parameters measuring degree of product differentiation in market. Concerning social welfare, key policymakers can tolerate some collusion decentralized structures; centralized structures advise for more procompetitive policy.