Abstract:
This article investigates how suppliersxed costs may translate into downstream market monopolization. Considering a vertical structure with perfectly competitive upstream firms that deliver a homogenous good to a differentiated retail duopoly, we show that upstream fixed costs may help to monopolize the downstream market. We find that downstream prices are increasing in upstream firms fixed costs when both intra- and interbrand competition exist. Our findings contradict the common wisdom that fixed costs do not affect market outcomes.
(Co-authors: Vanessa von Schlippenbach, Christian Wey)