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Supplier Fixed Costs and Retail Market Monopolization

Discussion Papers 1408, 22 S.

Stéphane Caprice, Vanessa von Schlippenbach, Christian Wey


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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 increase 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.

JEL-Classification: L13;L14;L42
Keywords: Fixed costs, vertical contracting, monopolization
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