Abstract
We consider a vertically related market where an upstream monopolist supplier trades, via interim observable two-part tariff contracts, with two differentiated downstream Cournot competitors. We show that passive partial backward ownership (PPBO) is pro-competitive and welfare enhancing. PPBO exacerbates the upstream monopolist’s commitment problem and yields lower wholesale prices, and higher industry output, consumers surplus, and welfare than in the absence of PPBO.
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