Downstream competition between an upstream supplier and an independent downstream firm

I consider an upstream supplier that supplies an input to an independent downstream firm and in addition sells the final product to consumers. I find that the upstream supplier cannot implement the monopoly outcome without imposing maximum resale price maintenance (RPM). RPM increases social welfare if consumers’ valuation for the final product of the downstream firm is high, and decreases social welfare otherwise. When the downstream firm is privately informed about the demand it faces, entry into the downstream market serves as a countervailing incentive that allows the upstream supplier to reduce the information rents. Consequently, asymmetric information induces the upstream supplier to enter the downstream market even if entry is not profitable under full information.