Unionized Oligopoly, Capacity Choice and Strategic Entry under Bertrand Competition

This paper deals with a context of a vertical industry with a monopolistic upstream firm and two downstream firms choosing, for strategic reasons, their capacity and then competing on price (à la Bertrand) between them in the final product market with differentiated products. In such a context, the effects of alternative price policies by a monopolistic input supplier (i.e. fixing either a uniform or a discriminated price) are investigated under a given exogenous market structure as well as under strategic entry. In the latter case also, the effects of the alternative input price behaviours on the entry are studied. As regards the former case, we show that the common wisdom according to which (1) the profit of the monopolistic supplier is higher when it is price-discriminating; (2) consumer’s surplus and social welfare are higher when it is non-price-discriminating, is always reversed.