Endogenous choice of price or quantity contract and the implications of two-part-tariff in a vertical structure

We re-investigate the endogenous choice of price (Bertrand) and quantity (Cournot) contract in the presence of a vertically related upstream market for input. We find that choosing price contract is the dominant strategy for downstream firms when the two-part-tariff pricing contract is determined through centralised Nash bargaining. We further show that the level of social welfare is the same regardless of the mode of product market competition (i.e., Bertrand or Cournot)