Abstract
This paper presents a model of vertical market structure under successive monopsony in addition to the models such as successive monopoly, retail price maintenance and vertical integration which are preeminent in the literature. The wholesaler and the retailer are considered as a monopolistic manufacturer and a monopolistic distributor respectively. Whoever takes the leadership of the two parties provides vertical structure of the market, which in turn allows double marginalization or single marginalization for one party only.
We show that a shift of leadership from manufacture to retailer does not necessarily lower retail price, and vice versa. Retail price is lowest if one party's intitiative becomes so powerful that only he can conduct single marginalization whether he is the upstreamer or the downstreamer. In case each party marginalizes, retail price is lower when the retailer (the manufacturer) takes the lead if the increasing rate of marginal cost of production is relatively small (great). The lower (smaller) the retail price (total margin for the two parties), the greater the total profit for them and social surplus.
On the other hand, the greater the individual margin for the retailer (the manufacturer), the lower the retail price provided that the increasing rate of marginal cost of production is relatively small (great) under conditions of double marginalization. But the greater each individual margin for the retailer (the manufucturer), the greater the corresponding individual profit regardless of the increasing rate of the marginal cost.
