Topics in Industrial Organization:
Firms’ Strategies, Market Structure and Bargaining in Two-tier industries
Prof. Emmanuel Petrakis
Syllabus
The purpose of this series of lectures is to analyze strategic interactions in two-tier
structures and investigate their impact on market outcomes and social welfare, as well as
to suggest alternative policy measures to correct for market inefficiencies. With two-tier
structures we refer to the relationships between manufacturers and retailers, input
suppliers and final good producers, unions and firms/employers and shareholders/owners
and managers. The basic results of each of these branches of the literature will be studied,
while particular emphasis will be given to the identification of the structural similarities
and dissimilarities among them. Particular attention will be paid in multi-lateral
bargaining situations which are commonly observed in two-tier industries.
BASIC REFERENCES:
 Belleflamme, P. and Peitz, M., Industrial Organization: Markets and Strategies,
Cambridge University Press, 2009.
 Jean Tirole, The Theory of Industrial Organization, MIT Press, 1989.
 Stephen Martin, Advanced Industrial Economics, McMillan, 2002.
 Alison Booth, The Economics of the Trade Union, Cambridge University Press, 1995.
 Massimo Motta, Competition Policy: Theory and Practice, Cambridge University
Press, 2004.
 Layard R., Nickel S.J., Jackman R., Unemployment: Macroeconomic Performance
and the Labour Market, Oxford University Press, 1991.
 Schmalensee R., and R. Willig (eds), Handbook of Industrial Organization, North
Holland.
A list of interesting papers on each of the three topics under consideration follows.
I.
UNION-OLIGOPOLY MODELS AND BARGAINING INSTITUTIONS
Corneo, G. (1996): "National Wage Bargaining in an Internationally Integrated Product Market",
European Journal of Political Economy, 11, 503-20.
De Fraja, G. (1993): "Staggered vs. Synchronized Wage Setting in Oligopoly", European
Economic Review, 37, 1507-22.
Dobson, P. (1994): "Multifirm Unions and the Incentive to Adopt Pattern Bargaining in
Oligopoly", European Economic Review, 38, 87-100.
Dorwick, S. (1989): "Union-Oligopoly Bargaining", Economic Journal, 99, 1123-42
1
Padilla, J., Bentolila, S., and Dolado, J.J. (1996): "Wage Bargaining in Industries with Market
Power", Journal of Economics and Management Strategy, 5(4), 535-64.
Dixon, H. (1988): “Unions, Oligopoly and the Natural Range of Employment”, Economic
Journal, 98, 1127-47.
E. Petrakis, and A. Dhillon (2002): “A Generalized Wage Rigidity Result with Centralized
Negotiations”, International Journal of Industrial Organization, 20 (3), pp. 285 – 311.
Espinosa, M., and Rhee, C. (1989): “Efficient Wage Bargaining as a Repeated Game”, Quarterly
Journal of Economics, 104, 565-89.
Grandner, T. (2000): “Optimal Contracts for Vertically Connected, Unionized Duopolies”,
Vienna University of Economics, WP No. 71.
Johnson, J.E. (1990): “Work Rules, Featherbedding and Pareto-optimal Union-Management
bargaining”, Journal of Labor Economics, 8, 237-59.
Macdonald, I.M., and Solow, R.M. (1981): “Wage Bargaining and Employment”, American
Economic Review, 71, 896-908.
Manasakis, C. and E. Petrakis (2009), “Union Structure and Firms’ Incentives for Cooperative
R&D Investments”, Canadian Journal of Economic, 42(2), 665-693.
Oswald, A. (1982): “The Microeconomic Theory of Trade Union”, Economic Journal, 92, 57695.
Petrakis, E., and Vlassis, M. (2004): “Endogenous Wage-Bargaining Institutions in Oligopolistic
Industries”, Economic Theory, 24(2004), 55-73.
Petrakis, E., and Vlassis, M. (2000): "Endogenous Scope of Bargaining in a Union-Oligopoly
Model: When will firms and unions bargain over employment?”, Labour Economics, 7(3), 26181.
Petrakis, E., and Vlassis, M. (2004), “The Political Economy of the Minimum Wage Institution in
an Internationally Integrated Market”, Review of International Economics, 12(1), 27-40.
Ulph, A., and Ulph, D. (1994): “Labour markets and innovation: Ex-post bargaining”, European
Economic Review, 38, 195-210.
Ulph, A., and Ulph, D. (1998): “Labour Markets, bargaining and innovation”, European
Economic Review, 42, 931-39.
Ulph, A., and Ulph, D. (1998): “Bargaining Structures and Delay in Innovation”, Scandinavian
Journal of Economics, 90, 475-91.
2
II.
STRATEGIC DELEGATION – OWNERS-MANAGERS RELATIONS
Bonanno, G., and Vickers, J. (1988) "Vertical Separation", Journal of Industrial Economics, 36,
257-266.
Fershtman, C., and Kenneth, J. (1987): “Equilibrium Incentives in Oligopoly”, American
Economic Review, 77(5), 927-40.
Grossman, S., and O. Hart, (1986): "The Costs and Benefits of Ownership: A Theory of Vertical
and Lateral Integration", Journal of Political Economy, 94, 691-796.
Hart, O. (1995): Firms, Contracts and Financial Structure, Oxford University Press.
Klein, B., Crawford, R., and Alchian, A. (1978): "Vertical Integration, Appropriate Rents, and the
Competitive Contracting Process," Journal of Law and Economics, 21, 297-326.
Lambertini, L., and Primavera G. (2000): “Delegation vs Cost-Reducing R&D in a Cournot
Duopoly”, Universita degli Studi di Bologna.
E. Mitrokostas, and E. Petrakis (2011): “Organizational structure, strategic delegation and
innovation in oligopolistic industries”, WP 2011/9, Economics Department, Universitat Jaume I,
Castellón.
C. Manasakis, E. Mitrokostas and E. Petrakis (2010): “Endogenous Managerial Incentive
Contracts in a Differentiated Duopoly, without and with Commitment”, Managerial and Decision
Economics, 31, 531–543.
Sklivas, S. (1987): “The Strategic Choice of Managerial Incentives”, Rand Journal of Economics,
18(3), 452-58.
Vickers, J.(1985), “Delegation and the Theory of the Firm”, Economic Journal, 95 Issue
Supplement: Conference Papers, 138-47.
Zhang, J., and Zhang, Z. (1997): “R&D in a Strategic Delegation Game”, Managerial and
Decision Economics, 18, 391-98.
Zhang, Z. (2002): “Managerial Incentives, Innovation and Product Market Competition”, DIW
Berlin, German Institute for Economic Research.
Ziss, S. (2001): “Horizontal Mergers and Delegation”, International Journal of Industrial
Organization, 19, 471-92.
Williamson, O. (1979): "Transaction-Cost Economics: The Governance of Contractual
Relations," Journal of Law and Economics, 22, 233-62
3
III.
VERTICAL RELATIONS – COMPETING VERTICAL CHAINS
Banerjee, S., and Lin, P. (2002): “Downstream R&D, Raising Rivals’ Costs, and Input Price
Contracts”, International Journal of Industrial Organization, 21, 79-96.
Bolton P., and Whinston, M. (1993) "Incomplete Contracts, Vertical Integration, and Supply
Assurance," Review of Economic Studies, 60, 121-48.
Caillaud, B., Jullien, B., and Picard, P. (1995): “Competing Vertical Structures: Precommitment
and Renegotiation”, Econometrica, 63(3), 621-46.
Chemla, G. (2003): “Downstream Competition, Foreclosure and Vertical Integration”, Journal of
Economics and Management Science, 12(2), 261-89.
De Fontenay, C.C. and J.S. Gans (2005), “Vertical Integration in the Presence of Upstream
Competition”, Rand Journal of Economics, 36, 544-572.
De Fontenay, C.C. and J.S. Gans (2006), “Bilateral Bargaining with Externalities”, unpublished
manuscript, Melbourne Business School.
Dobson, P. and Waterson, M. (1996): “Exclusive Trading Contracts in Successive Differentiated
Duopoly”, Southern Economic Journal, 63(2), 361-77.
Gallini, N., and Winter, R. (1983): “On Vertical Control in Monopolistic Competition”,
International Journal of Industrial Organization, 1, 275-86.
Gar-Or, E. (1991): “Duopolistic Vertical Restraints”, European Economic Review, 34, 1237-53.
Hart, O., and Tirole, J. (1990): "Vertical Integration and Market Foreclosure," Brooking papers
on Economic Activity: Microeconomics, 205-85.
Horn, H. and A. Wolinsky (1988): “Bilateral Monopolies and Incentives for Merger”, Rand
Journal of Economics, 19, 408-419.
Irmen, A. (1998): “Precommitment in Competing Vertical Chains”, Journal of Economic
Surveys, 12(4), 333-59.
Inderst, R. and C. Wey (2003): “Bargaining, Mergers, and Technology Choice in Bilateral
Oligopolistic Industries”, Rand Journal of Economics, 34, 1-19.
Inderst, R. and C. Wey (2006): “Buyer Power and Supplier Incentives”, European Economic
Review, forthcoming.
Matrimort, D. (1996): “Exclusive Dealing, Common Agency, and Multi-principals Incentive
Theory”, RAND Journal of Economics, 27(1), 1-31.
Mathewson, G., and Winter, R. (1984): “An Economic Theory of Vertical Restraints”, Rand
Journal of Economics.
4
Manasakis, C. and E. Petrakis (2005), “Downstream Research Joint Ventures with upstream
market power”, Department of Economics, University of Crete, Working Paper 05-13.
Milliou, C., E. Petrakis, and N. Vettas (2009): “(In-) efficient Trading Forms in Competing
Vertical Chains”, Department of Economics, University of Crete, Working Paper 09-16 (2003).
Milliou, C. and E. Petrakis (2007): “Upstream Horizontal Mergers, Vertical Contracts and
Bargaining”, International Journal of Industrial Organization, 25(5), 963-987.
Milliou C. and E. Petrakis (2012): “Vertical Integration, Knowledge Disclosure and Decreasing
Rivals´ Costs”, Departamento de Economía, Universidad Carlos III de Madrid, WP 12-13.
O’Brien, D., and Shaffer, G. (1992): “Vertical Control with Bilateral Contracts”, Rand Journal of
Economics, 23(3), 299-308.
Ordover, J., Saloner, G., and Salop, S. (1990) "Equilibrium Vertical Foreclosure," American
Economic Review, 80, 127-42.
Perry, M. (1989): "Vertical Integration: Determinants and Effects," ch.4 in Handbook of
Industrial Organization, Vol. 1.
Rey, P., and Stiglitz, J. (1995): “The Role of Exclusive Territories in Producers’ Competition”,
Rand Journal of Economics, 26(3), 431-51.
Rey, P., and Tirole, J. (1986): “The logic of Vertical Restraints”, American Economic Review, 76,
921- 39.
Rey, P., and Tirole, J. (2006): “A Primer on Foreclosure”, in M. Amstrong and R. Porter (eds.),
Handbook of Industrial Organization, Vol. 3, North-Holland, Amsterdam.
Rey, P. and T. Verge (2004): “Bilateral Control with Vertical Contracts”, Rand Journal of
Economics, 35, 728-746.
Saggi, K., and Vettas N. (2002): "On Intrabrand and Interbrand Competition: The Strategic Role
of Fees and Royalties," European Economic Review, 46, 189-200.
Salinger, M. (1988): "Vertical Mergers and Market Foreclosure," Quarterly Journal of
Economics, 107, 345-56.
Stefanadis, C.: 1997, Downstream vertical foreclosure and upstream innovation, Journal of
Industrial Economics, 73, 267-71.
5