Symbiotic Production and Downstream Market Competition

Abstract

It is well known that the double marginalization problem in the vertical relation can be eliminated by collusion, but it is undesirable because of the monopoly pricing outcome. This study addresses the role of downstream market competition under symbiotic production and demonstrates that incorporating different types of competition in product markets will partially eliminate inefficiency caused by double marginalization. It suggests that introducing callback services or internet telephones creates an environment similar to downward market competition in the output market; hence, it is observed that international tariffs are significantly reduced.