In vertical markets, eliminating double marginalization with a two-part tariff may not be possible due to downstream firms' risk aversion. When demand is uncertain, contracts with large fixed fees expose the downstream rm to more risk than contracts that are more reliant on variable fees. In...

Double marginalization is a common inefficiency in vertical markets. One theory of the source of double marginalization – even when two-part tariff contracts are available – is downstream risk aversion. When demand is uncertain, two-part tariffs with large fixed components can expose the...