Market power in bilateral oligopoly markets with non-expandable infrastructures

Yukihiko Funaki, Harold Houba, Evgenia Motchenkova

Research output: Contribution to journalArticle

Abstract

We develop a novel model of price-fee competition in bilateral oligopoly markets with non-expandable infrastructures and costly transportation. The model captures a variety of real market situations and it is the continuous quantity version of the assignment game with indivisible goods on a fixed network. We define and characterize stable market outcomes. Buyers exclusively trade with the supplier with whom they achieve maximal bilateral joint welfare at prices equal to marginal costs. Maximal fees and the suppliers’ market power are restricted by the buyers’ credible threats to switch suppliers. Maximal fees also arise from a negotiation model that extends price competition to price-fee competition. Competition in both prices and fees necessarily emerges. It improves welfare compared to price competition, but buyers will not be better off. The minimal infrastructure achieving maximal aggregate welfare differs from the minimal network that protects buyers most.

Original languageEnglish
JournalInternational Journal of Game Theory
DOIs
Publication statusAccepted/In press - 2019 Jan 1

Fingerprint

Oligopoly
oligopoly
market power
fee
Infrastructure
infrastructure
market
Welfare
supplier
welfare
Indivisible
marginal costs
Market
Bilateral oligopoly
Fees
Market power
Switch
Assignment
Model
threat

Keywords

  • Assignment games
  • Infrastructure
  • Market power
  • Negotiations
  • Non-linear pricing

ASJC Scopus subject areas

  • Statistics and Probability
  • Mathematics (miscellaneous)
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Cite this

Market power in bilateral oligopoly markets with non-expandable infrastructures. / Funaki, Yukihiko; Houba, Harold; Motchenkova, Evgenia.

In: International Journal of Game Theory, 01.01.2019.

Research output: Contribution to journalArticle

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