Communication in Vertical Markets: Experimental Evidence

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The working papers published in the Series constitute work in progress circulated to stimulate discussion and critical comments. Views expressed represent exclusively the authors' own opinions and do not necessarily reflect those of the editor. Terms of use: Documents in Communication in Vertical Markets: Experimental Evidence Claudia Möllers Duesseldorf Institute for Competition Economics (DICE) Hans-Theo Normann Duesseldorf Institute for Competition Economics (DICE) Christopher M. Snyder Dartmouth College and National Bureau of Economic Research July 2016Abstract: When an upstream monopolist supplies several competing downstream firms, it may fail to monopolize the market because it is unable to commit not to behave opportunistically. We build on previous experimental studies of this well-known commitment problem by introducing communication. Allowing the upstream firm to chat privately with each downstream firm reduces total offered quantity from near the Cournot level (observed in the absence of communication) halfway toward the monopoly level. Allowing all three firms to chat together openly results in complete monopolization. Downstream firms obtain such a bargaining advantage from open communication that all of the gains from monopolizing the market accrue to them. A simple structural model of Nash-in-Nash bargaining fits the pattern of shifting surpluses well. Using third-party coders, unsupervised text mining, among other approaches, we uncover features of the rich chat data that are correlated with market outcomes. We conclude with a discussion of the antitrust implications of open communication in vertical markets. Acknowledgments: The authors thank John de Figueiredo, Maura Doyle, Gautam Gowrisankaran, Ali Hortaçsu, Francisco Martinez, Paul Novosad, Patrick Rey and conference participants at CISS Turunç, DFG-ANR Rennes, EARIE Milan, ESA Jerusalem, IIOC Boston, LEW London, VfS Berlin (IO Committee) and VfS Münster for helpful discussions. We are grateful to the editor and referees for extensive, insightful comments, which substantially improved the paper. We are are grateful to Deutsche Forschungsgemeinschaft (grant DFG NO 429/5-1) for financial support.

Contracting and the Division of the Gains from Trade

“…We use the term joint contract to refer to a contacting choice between the exporter and importer which might, but does not necessarily, include cross-ownership Martin et al (2001). andMollers et al (2014) use experimental data to show vertical restraints of various forms (that do not entail vertical integration of firms) are sufficient to maximize joint profits.6 No new information is revealed after the fixed costs are paid. If the fixed costs of each party are sunk, then the opportunism problem remains but it would be more reasonable to think that the division of surplus is over the revenues, rather than the profits net of fixed costs.…”

“Nash-in-Nash” Bargaining: A Microfoundation for Applied Work

“…Many of the buyer power, wage bargaining, and health care market papers noted above satisfy these assumptions. In addition, Möllers, Normann, and Snyder (2016) explicitly verify that A.SCDMC and A.LNEXT hold in their application.…”