City Research Online

Price Competition with a Stake in your Rival

Hervas-Drane, A. & Shelegia, S. (2022). Price Competition with a Stake in your Rival. International Journal of Industrial Organization, 84, article number 102862. doi: 10.1016/j.ijindorg.2022.102862

Abstract

We examine how revenue-sharing and profit-sharing stakes affect price competition intensity under duopoly. Our analysis builds on the price competition framework introduced by Varian (1980) and accounts for fundamental asymmetries in terms of cost and consumer loyalty. A stake exists when a firm appropriates a share of its rival’s revenues or profits. For example, a marketplace owner that charges a third-party seller an ad valorem fee on its sales has a revenue-sharing stake, and a firm holding a minority ownership participation in another has a profit-sharing stake. We show that a revenue-sharing stake always has a stronger competition-dampening effect (leads to higher prices) than a profit-sharing stake, and explain how the introduction of a stake affects the intensity of competition between firms. Our analysis generates new insight into how stakes affect competitive interaction in the marketplace.

Publication Type: Article
Additional Information: © 2022 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license.
Publisher Keywords: Revenue-sharing, Ad valorem fees, Profit-sharing, Cross-ownership, Price dispersion
Subjects: H Social Sciences > HB Economic Theory
Departments: Bayes Business School > Management
SWORD Depositor:
[thumbnail of Preprint.pdf]
Preview
Text - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

Download (1MB) | Preview
[thumbnail of 1-s2.0-S0167718722000388-main.pdf]
Preview
Text - Published Version
Available under License Creative Commons: Attribution International Public License 4.0.

Download (768kB) | Preview

Export

Add to AnyAdd to TwitterAdd to FacebookAdd to LinkedinAdd to PinterestAdd to Email

Downloads

Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login