This note shows that the pro-competitive effect of pre-commitments is robust to Stackelberg-like market structures. Although our results are in line with Allaz & Vila (1993)'s, the two equilibria di¤er substantially. Sequential interactions foster a monopolization of the contract market and a redistribution of market shares - and hence of profits - towards the follower. Offsetting strategies in the sense of Bain (1949a) can then occur. The use of forward sales to exclude the rival in the output market requires the leader to have a strategic advantage in the contract market, as well as some conditions on the technological structure of the industry.
A note on forward contracts in leader-follower games'
BONACINA, MONICA;CRETI', ANNA
2010
Abstract
This note shows that the pro-competitive effect of pre-commitments is robust to Stackelberg-like market structures. Although our results are in line with Allaz & Vila (1993)'s, the two equilibria di¤er substantially. Sequential interactions foster a monopolization of the contract market and a redistribution of market shares - and hence of profits - towards the follower. Offsetting strategies in the sense of Bain (1949a) can then occur. The use of forward sales to exclude the rival in the output market requires the leader to have a strategic advantage in the contract market, as well as some conditions on the technological structure of the industry.
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