Pricing with markups under horizontal and vertical competition

Authors:
José R. Correa;Roger Lederman;Nicolás E. Stier-Moses
Affiliations:
Universidad de Chile;Columbia University;Columbia University
Venue:
Proceedings of the Behavioral and Quantitative Game Theory: Conference on Future Directions
Year:
2010

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Abstract

We model a market for a single product that may be composed of sub-products that face horizontal and vertical competition. Each firm, offering all or some portion of the product, adopts a price function proportional to its costs by deciding on the size of a markup. Customers then choose a set of providers that offers the lowest total cost. We characterize equilibria of the two-stage game and study the efficiency resulting from the competitive structure of the market.