A note on the profits of retail firms purchasing multiple inputs

This paper uses the Nash bargaining model to examine the effects of the distribution system on firms purchasing multiple inputs. We show that network combination, that is, vertical integration between a manufacturer and a retail firm, does not always bring enterprise superiority to a non-integrated firm. Although classical economic theory articulates that vertically integrated firms typi-cally have an advantage over non-integrated firms in profits, as the former can eliminate double marginalization, this is not always the case if we consider a situation of multiple inputs trading.

Abstract licence: CC BY

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