Long-term contracts in a successive oligopolies industry: the issue of price indexation

We consider an industry where a small number of upstream producers supplies an homogeneous good which is then resold to final consumers by an oligopoly of downstream retailers. While some retailers buy this good only on a wholesale market and are price-takers, the other ones hold long-term take-or-pay contracts with the upstream firms and behave strategically. As we assume imperfect competition among firms, such an industry structure gives rise to a double marginalisation problem. But it is also known that the use of long-term contracts can in some cases mitigate the market power of producers. We study how these two effects balance out, depending on the type of price indexation applicable in the contracts.