First Mover or Second Mover? Endogenous Timing With Partial Vertical Ownership

Abstract

We investigate a vertically related market with an upstream firm offering inputs to two downstream firms. Considering that downstream firms hold partial vertical ownership of the upstream firm without control rights, we analyze the endogenous order of moves for downstream firms and find that they may choose a more competitive situation: simultaneous pricing under Bertrand competition or sequential production under Cournot competition. Our results reverse the well-known endogenous order of moves and occur when the degree of product substitutability is low or the degree of partial vertical ownership is high.