Incentive to encourage downstream competition under bilateral oligopoly

Abstract

Consider the contracting problem of an input supplier dealing with several firms that compete in an output market. We show that, contrary to the key result of the previous literature, an input supplier’s profit can increase with the number of downstream firms if the upstream firm is not a monopolist but instead competes with an alternative inferior supplier. I would like to thank Henry Thille, Mike Waterson and the associate editor Patrick Legros for their valuable comments.