DP14974 Decentralizing Cooperation through Upstream Bilateral Agreements

Author(s): Doh-Shin Jeon, Yassine Lefouili
Publication Date: June 2020
Keyword(s): Bilateral oligopoly, Cooperation, upstream agreements
JEL(s): L13, L41
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14974

We consider an industry with nâ?¥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.