[E] Vertical Control in the Circular Economy
Le 20 févr. 2024
Abstract
We show that the possibility to recycle a product produces a loss of vertical control in a production channel where one upstream monopolist sells an input to two downstream firms, which transform it into two differentiated products. We set up and solve a two-period game. In each period the upstream firm makes secret TIOLI offers to the downstream firms. One downstream firm can recycle a part of its output and sell it in the second period. If the recycled product is homogeneous to the product of the other firm then recycling creates a cross-product, intertemporal externality that cannot be internal- ized. This entails that the whole surplus of the supply channel is reduced by recycling.
