Working Paper: CEPR ID: DP14974
Authors: Dohshin Jeon; Yassine Lefouili
Abstract: We consider an industry with n≥3 firms owning upstream inputs and interacting noncooperatively in a downstream market. Under general conditions, upstream bilateral agreements giving firms access to one another's input lead to industry profit maximization. This decentralization result applies to various upstream agreements including cross-licensing agreements among patent-holding manufacturers, interconnection agreements among telecommunication companies, interbank payments for ATM networks, and data-sharing agreements among competitors or complementors.
Keywords: bilateral oligopoly; upstream agreements; cooperation
JEL Codes: L13; L41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| upstream bilateral agreements (F55) | industry profit maximization (L21) |
| upstream bilateral agreements (F55) | fully cooperative outcome (C71) |
| equilibrium upstream bilateral agreements (F55) | joint profit maximization (L21) |
| upstream bilateral agreements (F55) | profit of any subset of firms (D21) |