NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Communication in Vertical Markets: Experimental Evidence

Claudia Möllers, Hans-Theo Normann, Christopher M. Snyder

NBER Working Paper No. 22219
Issued in May 2016
NBER Program(s):Industrial Organization, Law and Economics

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 bargaining fits the pattern of shifting surpluses well. We conclude with a discussion of the antitrust implications of open communication in vertical markets.

download in pdf format
   (342 K)

email paper

Supplementary materials for this paper:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22219

Published: Claudia Möllers & Hans-Theo Normann & Christopher M. Snyder, 2016. "Communication in Vertical Markets: Experimental Evidence," International Journal of Industrial Organization, .

Users who downloaded this paper also downloaded* these:
Al-Ubaydli and List w22113 Field Experiments in Markets
Cox, List, Price, Sadiraj, and Samek w22234 Moral Costs and Rational Choice: Theory and Experimental Evidence
Curtis w20808 Who Loses Under Power Plant Cap-and-Trade Programs?
Aizer, Currie, Simon, and Vivier w22558 Do Low Levels of Blood Lead Reduce Children's Future Test Scores?
Cooper, Craig, Gaynor, and Van Reenen w21815 The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us