Market Power in Bilateral Oligopoly Markets with Nonexpandable Infrastructures
41 Pages Posted: 23 Nov 2012
There are 2 versions of this paper
Market Power in Bilateral Oligopoly Markets with Nonexpandable Infrastructures
Market Power in Bilateral Oligopoly Markets with Nonexpandable Infrastructures
Date Written: November 22, 2012
Abstract
We consider price-fee competition in bilateral oligopolies with perfectly-divisible goods, non expandable infrastructures, concentrated agents on both sides, and constant marginal costs. We define and characterize stable market outcomes. Buyers exclusively trade with the supplier with whom they achieve maximal bilateral joint welfare. Prices equal marginal costs. Threats to switch suppliers set maximal fees. These also arise from a negotiation model that extends price competition. Competition in both prices and fees necessarily emerges. It improves welfare compared to price competition, but consumer surpluses do not increase. The minimal infrastructure achieving maximal aggregate welfare differs from the one that protects buyers most.
Keywords: Assignment Games, Infrastructure, Negotiations, Non-Linear Pricing, Market Power
JEL Classification: C78, L10, L14, D43, R10
Suggested Citation: Suggested Citation
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