Competition and Bargaining in Vertical Chains


Résumé (en anglais)

Vertical chains are industry structures where some firms (at the upstream level) supply other firms (at the downstream level). Imperfect competition usually prevails at both levels, and upstream and downstream firms also bargain with one another. The goal of this project is to understand the industrial organization of vertical chains in terms of competition and bargaining to analyze its consequence on the price, variety and quality of the products offered to consumers. To reach this goal, our project combines theoretical industrial organization research with empirical and experimental approaches. 
This project follows a previous Franco-German project that was financed by the ANR and the DFG over the period 2008-2011. This previous project was fruitful in many respects. First, we have shown important and original results in each of the tasks we had identified, and in most cases, these results have provided guidelines for competition authorities. Second, several Franco-German collaborations have emerged and besides, some have led to publications in top journals. The first project was, however, mostly theoretical. This new project will help us not only maintain and increase the existing interactions between participants in the field of theoretical industrial organization, but also develop new interactions between empirical and experimental economists who have joined on both the French and the German side. Finally, adding empirical and experimental analyses will allow us to focus on essential issues of vertical chains using three different and highly complementary methods. 
The overall project consists of four work packages. The goal of the first work package is to understand how competition and the balance of power between upstream and downstream firms affect the different types of investments realized by firms within a vertical chain. In particular, we focus on vertically related firms’ incentives to invest in quality or in operating cost reduction, in quality labeling and in corporate social responsibility. The second work package aims at integrating the diversity of retail formats in the analysis of both retail competition and the balance of power between retailers and their suppliers. Multi-format retail competition results from the heterogeneity of consumer’s shopping behavior and is likely to generate specific competition strategies (cross subsidization, loss-leading, etc.) as well as new bargaining strategies towards suppliers. The third work package focuses on anticompetitive effects of contracts, such as foreclosure effects or the vertical control of competition within vertical chains. The last work package takes a dynamic perspective to analyze issues of collusion and reputation building as well as firms’ strategies in the presence of demand uncertainties. 

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Dates : 15/04/2013 – 14/04/2017

Contact:  Stéphane Caprice