Advertisement

Journal of Economics

, Volume 70, Issue 1, pp 37–60 | Cite as

Explaining cross-supplies

  • Pio Baake
  • Jörg Oechssler
  • Christoph Schenk
Articles

Abstract

Cross-supplies describe the phenomenon that two or more firms in the same industry supply each other with their final products. A prominent example is the cooperation in the European flat-glass industry, which was recently criticized by the European Commission. In a simple model we attempt to explain what incentives firms may have to use cross-supplies (instead of producing the goods themselves) and what welfare effects cross-supplies have if they are used. Contrary to the ruling of the European Commission we find that cross-supplies improve welfare whenever they are employed. Furthermore, for a large range of parameters, they even benefit consumers.

Keywords

cross-supplies subcontracting Stackelberg 

JEL classification

L13 L22 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Auerbach, A. (1985): “The Theory of Excess Burden and Optimal Taxation.” InHandbook of Public Economics, edited by A. Auerbach and M. Feldstein. Amsterdam: North-Holland.Google Scholar
  2. European Court of Justice (1992): “Judgement of the Court of First Instance of 10 March 1992 in Joined Cases: T-68/89, T-77/89 and T-78/89. Societa Italiana Vetro SpA et al.”Official Journal of the EEC C107/8.Google Scholar
  3. EEC Commission (1989): “Decision of 7 December 1988 Relating to a Proceeding under Articles 85 and 86 of the EEC Treaty (IV/31.906, Flat Glass).”Official Journal of the EEC L 33/44, 04.02.1989.Google Scholar
  4. Harsanyi, J., and Selten, R. (1988):A General Theory of Equilibrium Selection. Cambridge, Mass.: MIT Press.Google Scholar
  5. Kamien, M., Li, L., and Samet, D. (1989): “Bertrand Competition with Subcontracting.”Rand Journal of Economics 20: 553–567.Google Scholar
  6. Krishnan, M., and Röller, L. (1993): “Preemptive Investment with Resalable Capacity.”Rand Journal of Economics 24: 479–502.Google Scholar
  7. Lawrence, R. (1993): “Japan's Different Trade Regime: an Analysis with Particular Reference toKeiretsu.”Journal of Economic Perspectives 7: 3–19.Google Scholar
  8. Matsumura, T. (1997): “A Two-Stage Cournot Duopoly with Inventory Costs.”Japanese Economic Review 48: 81–89.Google Scholar
  9. Salinger, M. (1988): “Vertical Mergers and Market Foreclosure.”Quarterly Journal of Economics 103: 345–356.Google Scholar
  10. Saloner, G. (1987): “Cournot Duopoly with Two Production Periods.”Journal of Economic Theory 42: 183–187.Google Scholar
  11. Schrader, A., and Martin, S. (1998): “Vertical Market Participation.”Review of Industrial Organization 13: 321–331.Google Scholar
  12. Spiegel, Y. (1993): “Horizontal Subcontracting.”Rand Journal of Economics 24: 570–590.Google Scholar

Copyright information

© Springer-Verlag 1999

Authors and Affiliations

  • Pio Baake
    • 1
  • Jörg Oechssler
    • 1
  • Christoph Schenk
    • 2
  1. 1.Department of EconomicsHumboldt University BerlinBerlinGermany
  2. 2.Wissenschaftszentrum BerlinBerlinGermany

Personalised recommendations