Passive forward ownership and upstream collusion

• Published in: Economics letters Vol. 216; p. 110608
• Main Authors: Charistos, Konstantinos, Pinopoulos, Ioannis N., Skartados, Panagiotis
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-07-2022
• Subjects: Competing vertical chains; Passive vertical ownership; Tacit collusion; Passive vertical ownership; D43; Tacit collusion; L81; L40; L13; Competing vertical chains
• ISSN: 0165-1765; 1873-7374
• DOI: 10.1016/j.econlet.2022.110608

We investigate the effects of passive forward ownership on the sustainability of upstream collusion. We consider a homogeneous Cournot duopoly with competing vertical chains, where each upstream firm has symmetric passive ownership over its downstream exclusive client. With general demand, (i) we show that passive forward ownership increases collusive profits, (ii) we identify two opposing effects of passive forward ownership on punishment and deviating profits: a positive (direct) effect due to ownership and a negative effect working through input prices. By considering three demand functions, including the widely-used linear demand, we show that passive forward ownership hinders upstream collusion.
•We consider two competing vertical chains (CVCs) with a homogeneous Cournot duopoly.•In each CVC there exists a symmetric passive partial forward ownership (PFO).•We set an infinitely repeated two-stage game with general demand and linear tariffs.•Under a general demand, we identify the effects that may hinder upstream collusion.•Under three demand examples (including linear), PFO does hinder upstream collusion.