When is upstream collusion profitable?

Gu, Dingwei; Yao, Zhiyong; Zhou, Wen; Rang-rang, Bai

doi:10.1111/1756-2171.12271

Cited by 17 publications

(5 citation statements)

References 32 publications

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“…In contrast to Reisinger and Thomes (2017), they show that a common upstream supplier can replace the observable supply contract to deter downstream firms from deviating. Gu et al (2019) show that the upstream collusion can balance the vertical externality and the horizontal externality in the vertical market.…”

Section: Introductionmentioning

confidence: 94%

Does Aftermarket Monopolization Facilitate Upstream Collusion?

Cheng

2023

Preprint

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This article explores the stability of collusion among upstream firms selling to downstream firms with an aftermarket. Consumer lock-in due to aftermarket monopolization prevents the deviating firm from capturing the aftermarket of its rivals which reduces the deviation profits. On the other hand, the deviation firm locks in the old consumers in the aftermarket, which mitigates the severity of the punishments. The latter effect dominates the former, making collusion unstable in the aftermarket monopolization case. Ironically, when the size of the monopolistic aftermarket is large enough, increasing the aftermarket size stabilizes the collusion. In contrast to prior literature, there is an inverted U-shaped relationship between the stability of collusion and collusive prices in the presence of an aftermarket.

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Section: Introductionmentioning

confidence: 94%

Does Aftermarket Monopolization Facilitate Upstream Collusion?

Cheng

2023

Preprint

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“…Consistent with research on cartel collusion (e.g., Gu et al., 2019; Heywood & Wang, 2020), we assume that the resulting earnings are shared equally across all M providers at the focal location. Note that we are not envisioning a redistribution of earnings between providers after each collusion period.…”

Section: Model Frameworkmentioning

confidence: 99%

Hiding in plain sight: Surge pricing and strategic providers

Bai,

Heese,

Tripathy

2023

Production and Operations Management

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Many on‐demand service platforms employ surge pricing policies, charging higher prices and raising provider compensation when customer demand exceeds provider supply. There is increasing evidence that service providers understand these pricing policies and strategically collude to induce artificial supply shortages by reducing the number of providers showing as available online. We study a stylized mathematical model of a setting in which an on‐demand service platform determines its pricing and provider compensation policies, anticipating their impact on customer demand and the participation of strategic providers, who might collectively decide to limit the number of providers showing online as available. We find that collusion can substantially harm the platform and customers, especially when the potential demand is large and the supply of providers in nearby regions is limited. We explore two pricing policies that a platform could employ in the presence of (potential) provider collusion: a bonus pricing policy that offers additional provider payments on top of the regular compensation, and the optimal pricing policy that maximizes the platform's expected profit while taking strategic provider behavior fully into consideration. Both policies feature a compensation structure that ensures that total provider earnings increase in the number of providers available, thereby encouraging all providers to offer their service. We show that both policies can effectively mitigate the impact of potential provider collusion, with the bonus pricing policy often performing near‐optimally. As it might be difficult for a platform to accurately estimate the propensity of providers to collude, we numerically evaluate how platform profits are affected if the pricing policy is designed based on possibly incorrect estimates of the providers' propensity to collude. Our observations suggest that a platform should design its pricing policy under the assumption that all providers are strategic and consider collusion, as the losses associated with implementing such a policy in settings with minor risk of collusion are limited, while the potential losses from failing to consider rampant collusion can be significant.This article is protected by copyright. All rights reserved

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“…Upstream manufacturers cooperate for many reasons, such as to increase joint market size, to develop products with new features to protect the present and future share of the market, and to conquer a larger share of the market [7]. In the existing literature, researchers have explored empirically identified scenarios where manufacturers may collude [8,9]. Nocke and White [10] examined the condition when the collusive effect between upstream manufacturers improves the utility of the overall distribution channel.…”

Section: Introductionmentioning

confidence: 99%

Effect of Optimal Subsidy Rate and Strategic Behaviour of Supply Chain Members under Competition on Green Product Retailing

Saha

Nielsen

Sana

2021

Mathematical Problems in Engineering

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This paper investigates the impact of the subsidy and horizontal strategic cooperation on a green supply chain where two competing manufacturers distribute substitutable green products through exclusive retailers. Models are formulated in three-stage game structures in five different scenarios, where the government organization determines optimal subsidy by pursuing social welfare maximization. Both manufacturers invest in improving green quality levels of products. The study aims to explore the advantage of vertical integration and strategic collusion from the perspective of green supply chain practice in the presence of subsidy. The key contributions from the present study indicate that under competition, members of both supply chains are able to receive higher profits through horizontal collusion, but green quality levels of the product remain suboptimal. If upstream manufacturers cooperate, government subsidy does not necessarily improve product quality level, and the amount of government expenditure increased substantially. By comparing outcomes where members are vertically integrated with scenarios where members make strategic collusion, we found that the former might outperform by later. Cross-price sensitivity appears as a significant parameter affecting supply chain members’ performance and the amount of government expenditure. Cooperation between members at the horizontal level is a more robust strategic measure than vertical integration if consumers are highly price-sensitive.

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When is upstream collusion profitable?

Cited by 17 publications

References 32 publications

Does Aftermarket Monopolization Facilitate Upstream Collusion?

Does Aftermarket Monopolization Facilitate Upstream Collusion?

Hiding in plain sight: Surge pricing and strategic providers

Effect of Optimal Subsidy Rate and Strategic Behaviour of Supply Chain Members under Competition on Green Product Retailing

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