Downstream and upstream oligopolies when retailer’s effort matters

This paper investigates the different terms of strategic interactions (non-cooperative, simultaneous move): wholesale versus retail pricing—between Bertrand competing retailers and an upstream oligopoly. The crucial extension is that retailers can play a significant role and this can turn conventional wisdom upside down, e.g.: retail competition need not benefit the upstream firms and wholesale pricing can dominate retail pricing in spite of double marginalization because of the incentives it provides to retailers. In addition, the consequences are investigated of differentiating both pricing instruments either at the downstream (this is motivated by Apple’s entry into the ebook market) or at the upstream level.