Discussion paper

DP14974 Decentralizing Cooperation through Upstream Bilateral Agreements

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.


Jeon, D and Y Lefouili (2020), ‘DP14974 Decentralizing Cooperation through Upstream Bilateral Agreements‘, CEPR Discussion Paper No. 14974. CEPR Press, Paris & London. https://cepr.org/publications/dp14974