| Abstract |
Once a fi rm is vertically integrated, it is well-known that such a firm has an incentive to delegate quantity decision to its downstream affiliate to increase its total profits by manipulating its input price. This kind of analysis has been analytically done but this note applies Ikema's diagrammatic demonstration to the model with a vertically integrated fi rm to show how to derive the market equilibrium in "quantity-price" plane diagrammatically. First, we derive the locus that firms' optimal supplies at any price level, which is called "Cournot-Ikema curve" and derive the equilibrium point which is identifi ed with the intersection of a demand curve and the Cournot-Ikema curve. This paper fi nds that strategic delegation rotates the curve clockwise with a fixed point at a price level equal to marginal cost. Finally, our model is extended to the case that a multinational enterprise manipulates transfer price, and shows that such a tax motivated transfer price further rotates the curve.
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