Restriction of selling capacity by a retailer

Abstract

We consider two symmetric upstream firms producing independent goods that sell to consumers through a common retailer. The distinguishing feature of the retailer is that she has a selling capacity, in the sense, that there is an upper limit in the total units of the two goods she can sell. We obtain that the retailer has incentives to reduce her selling capacity in order to increase the pay-off she obtains in the vertical structure.