The Study Of Two-Part Tariff Under The Condition Of Countervailing Power

Two-tariff in intermediate products market is that the upstream in industry chain not only charge wholesale price per unit product, but also charge a fixed fee when transact with the downstream. This form of trading is widely used in fast food chains, clothing sales industry and technology licensing transactions. By carefully analysis, we can find that these transactions have a common characteristic, that is, the upstream has full force relative to the downstream enterprises. The source of this force may be due to the upstream companies have ownership of the trademark, or may be due to the upstream has a patented technology. In the case that the upstream has full force, the upstream can guide the downstream to make decisions which is best for the upstream by adopt wholesale prices. And then recover the profits of retailers by fixed costs. In this situation the downstream can only get normal profit.However, with the development of technology, the competition among the upstream enterprises becomes fiercer and fiercer. The assume that upstream company has full force no longer meets the reality of the industry. The countervailing powers of downstream firms become more and more apparent. The emerges of countervailing power in downstream firm makes it no longer content with normal profits, and excess profits will ask for more. In this case, whether the original two-part tariff that implemented when the upstream companies have fully forces can be implemented again? If it can implement, will it has some changes? What is the principle mechanism for the occurrence of these changes? These theoretical issues are worthy of serious study.While the existing literature on slotting allowances had made some preliminary study for those issues, but these studies also have an important assumption that the downstream enterprises with full force. This study is just from one extreme to the other extreme, just make the decision-making of two-part tariff transferred from upstream to downstream firms, did not answer the above-mentioned questions from nature.We build three vertical market structure models, including a successive monopoly, bilateral duopoly and monopoly oligopoly, and assume that the countervailing power of downstream can change continuously. Under this situation we study the impact of countervailing power on two-part tariff, and answered questions from the aforementioned nature. The study found that the impacts of countervailing power on two-part tariff depend on market structure. In the market structure of successive monopoly and bilateral duopoly, the countervailing power of retailers never affect the wholesale price in two-part tariff, but have some effect on fixed fees. Specially, the bigger the countervailing power is, the less the fixed fees the retailers pay. However, the countervailing power of retailer not only affects the wholesale price but also affects the fixed fees in two-part tariff. Moreover, the wholesale price and fixed fees decrease with countervailing power. What’s more, the increase of countervailing power may lead to the appearance of slotting allowances that pay by the upstream to the downstream in some situations. However, the countervailing power is not the sufficient condition of slotting allowances, but just a necessary condition. Whether the slotting allowances will emerge or not have something with market structure and competition form.The principle behind those results is like this:the competitive effects are different under different market structures. In successive monopoly market structure, there is no competitive effect between enterprises, the upstream and downstream companies will develop a wholesale prices that makes total profit maximization through negotiations, and then allocate the total profit in the industry chain through a fixed fee. In bilateral duopoly market structure, the upstream and downstream enterprises will form a supply chain that competes with another chain. The upstream and downstream companies will also develop a wholesale price that makes total profit maximization through negotiations, and then allocate the total profit in the industry chain through fixed fees. In both market structures, the countervailing power just affects the ability of retailer to gain more profit. In the monopoly oligopoly market structure, there is competition within the brand, in this situation the upstream will change wholesale price and fixed fees to deal with the increase of countervailing power. Therefore the countervailing power not only affects wholesale price but also affects fixed fees.Finally, through the study of cases the Maotai and Wuliangye charge franchise fees, Carrefour, Tesco charge slotting allowances, Qualcomm charge royalty to verify the conclusions of this study.