University of Duesseldorf
40225 Düsseldorf Germany
Institutional Affiliation: Duesseldorf Institute for Competition Economics (DICE)
NBER Working Papers and Publications
|May 2016||Communication in Vertical Markets: Experimental Evidence|
with Hans-Theo Normann, Christopher M. Snyder: w22219
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 sur...
Published: Claudia Möllers & Hans-Theo Normann & Christopher M. Snyder, 2016. "Communication in Vertical Markets: Experimental Evidence," International Journal of Industrial Organization, . citation courtesy of