Abstract
We consider the issue of first- and second-mover advantages in a vertically related market. First, we show that the standard conclusions about sequential-move games under Bertrand and Cournot competitions can change in the context of a vertically related market. This is because an upstream monopoly can control first- and second-mover advantages by adjusting input prices. Ultimately, the upstream firm can achieve optimal profits by removing the first-mover (second-mover) advantage under Cournot (Bertrand) competition. Moreover, the profit of the upstream firm and social welfare are equal between Cournot and Bertrand com- petition under both simultaneous- and sequential-move games in a vertically related market.
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