Journal of Economic Theory and Econometrics vol. 20, no. 1, pp. 20 - 50
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Abstract
Shin and Yoo (2007) showed that under vertical market structure with the downstream market characterized by Cournot competition, it can be welfare-enhancing for the upstream firm to enter the downstream market and discriminate prices against downstream rival firms. This possibly counter-intuitive result arises from reduced double marginalization. This paper shows that Shin and Yoo's (2007) findings may not extend to a setting of horizontally differentiated downstream market. When the downstream market is horizontally differentiated, it may be socially desirable to prohibit price discrimination when the upstream firm enters the downstream market.