English
This article analyzes a simple two-period model where two homogenous manufacturers compete to supply a monopolist retailer. We show that if manufacturers are vulnerable (i.e., if they are likely to be driven out of the market in case of insufficient orders in the first period), they may exploit this threat of bankruptcy to seize the entire sector’s first period profit. Indeed, the retailer will be obliged to pay a higher price to the manufacturers in order to secure upstream competition in the second period. These results are also valid for different market structures or contract types.
Keywords
- bargaining power
- market entry
- vertical contract
