Price-Dependent Profit Sharing as an Escape from the Bertrand Paradox
15 Pages Posted: 7 Mar 2007
Date Written: February 2007
Abstract
In this paper we show how an upstream firm can prevent destructive competition among downstream firms producing relatively close substitutes by implementing a price-dependent profit-sharing rule. The rule also ensures that the downstream firms undertake investments which benefit the industry in aggregate. The model is consistent with observations from the market for content commodities distributed by mobile networks.
Keywords: profit-sharing, vertical restraints, investments, competition
JEL Classification: L13, L22
Suggested Citation: Suggested Citation
Foros, Øystein and Hagen, Kare Petter and Kind, Hans Jarle, Price-Dependent Profit Sharing as an Escape from the Bertrand Paradox (February 2007). CESifo Working Paper Series No. 1927, Available at SSRN: https://ssrn.com/abstract=968597 or http://dx.doi.org/10.2139/ssrn.968597
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