Price-dependent profit sharing as an escape from the Bertrand paradox

Type/nr A62/06
Skrevet av Øystein Foros, Kåre P. Hagen and Hans Jarle Kind
In this paper we show how an upstream firm can prevent destructive competition among downstream firms producing relatively close substitutes by implementing a price-dependent profit-sharing rule. The rule also ensures that the downstream firms undertake investments which benefit the industry in aggregate. The model is consistent with observations from the market for content commodities distributed by mobile networks.
Språk Skrevet på engelsk