Publications
Vertical contracting between a vertically integrated firm and a downstream rival with Ioannis Pinopoulos, Economic Theory, Vol. 78, 2024.
https://doi.org/10.1007/s00199-023-01529-6
Abstract
Compared to linear tariffs, two-part tariffs are generally perceived as being more efficient since double marginalization is avoided. We investigate the efficiency of two-part tariffs vs. linear tariffs when a vertically integrated firm sells its input also to an independent downstream firm selling a differentiated substitute product. We find that a linear tariff can generate higher consumer surplus and overall welfare than a two-part tariff when the independent downstream firm is rather powerful in negotiating the contract terms, and downstream competition is in prices (Bertrand competition). In that case, the integrated firm makes more profits under a linear tariff than under a two-part tariff. In contrast, under downstream Cournot competition two-part tariffs are always welfare-superior. Under linear demand, we find that, irrespective of the mode of downstream competition and the distribution of bargaining power, the preferred contract type of the integrated firm is always welfare-superior.
Dynamic Vertical Foreclosure with Learning-by-Doing Production technologies with Nikolaos Vettas, Games, Vol. 15(2), 2024
Abstract
Here, we study vertical foreclosure in a dynamic setup with learning-by-doing production technologies. There is a downstream monopoly and an upstream duopoly, where manufacturers produce differentiated products and can gain proficiency through the accumulation of their production. We study the dynamic interactions in the vertical chain when the monopolist sets the prices; we find that customer foreclosure may arise in equilibrium when the products are close substitutes and be welfare-enhancing. The rate of learning is lower than the social optimal and a social planner would tend to impose exclusivity more often compared to the downstream monopolist.
Strategic commitment and vertical contracting in location choices with Nikolaos Vettas, Revise & Resubmit to the Review of Industrial Organization, 2024
Abstract
We set-up a linear city model with duopoly both upstream and downstream. Consumers pay a transportation cost when they buy from a retailer and so do retailers when they buy from a wholesaler. All location and pricing decisions are endogenous. When the wholesalers choose their locations first, they locate closer to the center relative to the retailers, and relative to when all firms move simultaneously. Each wholesaler locates closer to the center in order to unilaterally strengthen the strategic position of his retailer by pulling him towards the market center, however, resulting, in equilibrium, to a greater intensity of competition. All firms locate farther away from the market center and industry profits are higher under linear pricing relative to two-part tariffs and, in turn, relative to vertical integration.
Net Neutrality, Exclusivity Contracts and Internet Fragmentation with Jan Krämer and Tommaso Valletti, Information System Research, Vol. 26, No 2, 2015
Abstract
Net neutrality is believed to prevent the emergence of exclusive online content which yields Internet fragmentation. We examine the relationship between net neutrality regulation and Internet fragmentation in a game-theoretic model that considers the interplay between termination fees, exclusivity and competition between two Internet Service Providers (ISPs) and between two Content Providers (CPs). An exclusivity arrangement between an ISP and a CP reduces the CP's exposure to some end users but it also reduces competition over ads among the CPs. Fragmentation arises in equilibrium when competition over ads among the CPs is very strong, the CPs' revenues from advertisements are very low, the content of the CPs is highly complementary, or the termination fees are high. We find that the absence of fragmentation is always beneficial for consumers, as they can enjoy all available content. Policy interventions that prevent fragmentation are thus good for consumers. However, results for total welfare are more mixed. A zero-price rule on traffic termination is neither a sufficient nor a necessary policy instrument to prevent fragmentation. In fact, regulatory interventions may be ineffective or even detrimental to welfare and are only warranted under special circumstances.
Net Neutrality with Competing Internet Platforms with Marc Bourreau and Tommaso Valletti, Journal of Industrial Economics, Vol. 63, No 1, 2015
Abstract
We propose a two-sided model with two competing Internet platforms, and a continuum of Content Providers (CPs). We study the effect of a net neutrality regulation on capacity investments in the market for Internet access, and on innovation in the market for content. Under the alternative discriminatory regime, platforms charge a priority fee to those CPs which are willing to deliver their content on a fast lane. We find that under discrimination investments in broadband capacity and content innovation are both higher than under net neutrality. Total welfare increases, though the discriminatory regime is not always beneficial to the platforms as it can intensify competition for subscribers. As platforms have a unilateral incentive to switch to the discriminatory regime, a prisoner's dilemma can arise. We also consider the possibility of sabotage, and show that it can only emerge, with adverse welfare effects, under discrimination.
Technology Transfer, Contracting, and Product Market Competition with Sabina Sachtachinskagia and Nikolaos Vettas, in The Analysis of Competition Policy and Sectoral Regulation, ed. by M. Peitz and Y. Spiegel, World Scientific, Now Publishers, 2014
Abstract
We examine aspects of how new technology may be transferred to firms that use it in a final product market. Should technology transfer take place to a single firm or to more than one, and should it happen gradually or at once? How do the incompleteness of contracts and the nature of product market competition affect the transfer of technology? Such issues are central in the challenges that multinationals face when they need to transfer technology to local firms. First, we review the main related ideas in the literature. Second, we set up a simple model of gradual transfer of a cost-reducing innovation by its owner to the product market. We illustrate why, in the absence of vertical integration and complete contracts, technology transfer tends to be slower and at a lower than the optimal level and discuss the crucial role of potential competition in determining the level and allocation of profits between the upstream and the downstream firms.
Indicators of Business Performance and Progress Reform research for EC, 2014
On the Economics of Non Horizontal Mergers with Nikolaos Vettas, in The Reform of EC Competition Law, New Challenges, ed. by I. Lianos and I . Kokkoris, Kluwer, 2010
(in Greek) “Ανταγωνισμός, ανταγωνιστικότητα και εξωστρέφεια. Η φύση και ο ρόλος των εμποδίων εισόδου”, με τον Νικόλαο Βέττα στο Ανταγωνιστικότητα για Ανάπτυξη: Προτάσεις Πολιτικής, επιμέλεια Μ. Μασουράκης και Χ. Γκόρτσος, Ελληνική Ένωση Τραπεζών, 2014
Working papers and work in progress
Versioning by Outsourcing with Romain Lestage, submitted to a journal, 2024
Abstract
This study investigates versioning strategies when a product version is outsourced. We find that outsourcing the high-end version improves the quality of the low-end version, as negotiations over wholesale prices lead the firm to set quality levels between the industry optimum and the point that maximizes disagreement payoffs. This effect can reduce low-end quality distortion in asymmetric information scenarios, potentially enhancing overall welfare. However, it may also push low-end quality beyond the socially optimal level. The main factors influencing this trade-off are the proportion of high-type versus low-type consumers, which affects outcomes in case of negotiation failure, and the relative bargaining power between the firm and contractor, which defines the weight of the agreement and disagreement payoffs in setting quality. Conversely, outsourcing the low-end version tends to reduce the quality of the in-house high-end version, offering less benefit to social welfare. The study also shows that while outsourcing influences quality decisions in standard versioning models, the outcomes are largely independent of the specifics of the outsourcing arrangement and game timing.
Systematic Risk and Exchange-rate exposure of pair arbitrage portfolios with Athanasios Andrikopoulos, 2022. Available at SSRN: https://ssrn.com/abstract=4294846 or http://dx.doi.org/10.2139/ssrn.4294846
Abstract
We analyse the exchange-rate exposure (exposure) and systematic risk (beta) of individual stocks and pair arbitrage portfolios (PAP) in a Bertrand-type international duopoly. Under currency appreciation the firm beta from the depreciating (appreciating) country, decreases (increases). As the home (foreign) demand uncertainty decreases the exposure for the home (foreign) firm increases (decreases). The PAP exposure is positive and increases with decreasing home or foreign demand uncertainty, while its beta decreases with the exchange rate. We investigate several calibrating examples.
On the Dynamics of Technology Transfer with Sabina Sachtachinskagia and Nikolaos Vettas, CEPR Discussion Paper 4247-1627151897, July 2021.
Abstract
We study the strategic timing and pace of cost reducing technology transfer by an upstream monopolist to a downstream market when there is potential competition downstream and the protection of intellectual property rights is imperfect. The possibility that the downstream firm may not fully compensate the upstream firm for the benefits that it has received, creates "hold- up" issues. In equilibrium transfer occurs to the same downstream firm in both periods, however the contractual relationship is crucially affected by the presence of competitors - in particular, there is a delay in technology transfer, relative to the vertical integration benchmark. The upstream firm is trying to limit the downstream firm's bargaining power, in an effort to pay lower rent or no rent in the subsequent period. Price competition downstream does not fully eliminate the opportunistic behavior created by the imperfect intellectual property rights.
Vertical Trading Structures and Product Differentiation with Nikolaos Vettas, working paper, Athens University of Economics and Business.
Abstract
We examine a linear-city model with successive duopolies where firms are located within the unit interval and both consumers and retailers pay transportation costs. In our three stage game, we endogenize the wholesale and pricing decisions under two different vertical contracts types: under linear pricing the wholesalers charge unique wholesale prices to both retailers and under price discrimination the wholesalers are allowed to charge different prices among the retailers. Under linear pricing, there is no equilibrium in pure strategies on the wholesale prices for all parameter values. When the cost parameter of the retailers is low compared to the cost parameter of the final consumers, the wholesalers have an incentive to undercut their rival to obtain the whole demand. The introduction of product differentiation in vertical linked firms may lead to non-existence of wholesale pricing equilibria. Further, price competition is more intense under price discrimination and leads to lower wholesale and final prices for low values of the retailers’ cost parameter.