On the Impact of Input Prices on an Entrant’s Profit Under Multi-Product Competition

On the Impact of Input Prices on an Entrant’s Profit Under Multi-Product Competition We study the impact of input prices on an entrant’s profit when firms are engaged in multi-product competition. We consider a setting with both horizontal and vertical differentiation, in which a vertically integrated firm controls the input that is required for the supply of the high-quality product. We establish the conditions under which the entrant is better off from an increase in the wholesale price of this critical input. This possibility contrasts with the existing literature that, under linear demands, finds a non-positive relationship between the input price and the single-product entrant’s profit. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

On the Impact of Input Prices on an Entrant’s Profit Under Multi-Product Competition

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Publisher
Springer US
Copyright
Copyright © 2016 by Springer Science+Business Media New York
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-016-9531-2
Publisher site
See Article on Publisher Site

Abstract

We study the impact of input prices on an entrant’s profit when firms are engaged in multi-product competition. We consider a setting with both horizontal and vertical differentiation, in which a vertically integrated firm controls the input that is required for the supply of the high-quality product. We establish the conditions under which the entrant is better off from an increase in the wholesale price of this critical input. This possibility contrasts with the existing literature that, under linear demands, finds a non-positive relationship between the input price and the single-product entrant’s profit.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Jul 19, 2016

References

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