The aim of this paper is to investigate the impact on an industry's price-cost margin of firms in downstream industries having seller market power. We develop a detailed theoretical model based upon Cournot's work in this area which predicts that margins are raised by an increase in successive market power of this type. Our prediction contrasts with work by Lustgarten, who found that bilateral market power depressed margins; we explain our result intuitively in terms of two opposing effects. In our regression analysis on U. K. data we test the two hypotheses simultaneously and find both confirmed.

This paper develops a model of product patents in which the patent changes the nature of market entry behavior rather than preventing entry entirely. The model incorporates three levels of action, namely, the innovator's patenting decision, the potential entrant's location decision, and possible court action. The analysis demonstrates how the characteristics of the patents system and the enforcement framework can influence rivals' variety choices and, thus, the market equilibrium. It also considers how the system can, in principle, be adjusted to improve social welfare. Copyright 1990 by American Economic Association.