I revisit supplier encroachment under the framework of a two-part tariff contract. When a monopoly manufacturer supplies competing retailers and each retailer's contracting process is unobservable to the rival, the retailer's lack of knowledge vis-à-vis its rival's contract may undermine the manufacturer's commitment power, which prevents the manufacturer from achieving optimal profit. I demonstrate that when the manufacturer directly supplies the resale market, it can use the direct channel as a commitment tool and thus restore its market power. Even though the manufacturer's encroachment creates more competitors in the resale market, the resultant higher wholesale prices aggravate double marginalization, which may reduce consumer welfare. This result holds even when the manufacturer is very efficient in direct selling.
I revisit endogenous timing in a quantity‐setting duopoly game. In the basic model, I show that given strong heterogeneity in consumers’ willingness to pay (WTP) and a moderately small consumer segment with low WTP, sequential moving outcomes can appear in equilibrium with the follower enjoying second‐mover advantage. Owing to consumer heterogeneity in WTP, there is a local property that a firm's aggressive behaviour may lead to a competitor responding more aggressively. Hence, the sequential moves can restrict firms’ total outputs to avoid a price collapse, and result in firms’ strategic choices that Pareto dominate those under the simultaneous move. I further generalize my results and show that although firms compete in quantity, under some conditions of the demand function, features of strategic complements can appear.
We examine a quantity competition among branded and nonbranded firms. The market comprises two consumer segments: one purchases only branded products (the high-end market), while the other segment's consumers purchase less expensive products (the low-end market). When branded firms take actions sequentially, we show that the branded leader has an incentive to restrict its quantity to avoid entering the low-end market. As the follower recognizes this incentive, it can restrict the leader by implementing a quantity constraint, which is affected by the number of nonbranded firms. We find that both the branded leader and follower could benefit from the nonbranded firms and that the leader prefers to have more nonbranded firms in the market than the follower does. Furthermore, we show that the free entry of nonbranded firms could negatively affect total surplus as well as consumer surplus even without any costs, because of the premium pricing of branded products.
This paper explains why some firms share their technology with competitors. We consider a Hotelling market where duopolists sell products with different qualities. This market consists of heterogeneous consumers, comprising three groups in terms of their valuations of product quality. We show that when consumers’ preferences for product quality are sufficiently heterogeneous, a high-quality firm benefits from sharing quality-enhancing technology.
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