American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Vertical Bargaining and Countervailing Power
American Economic Journal: Microeconomics
vol. 6,
no. 3, August 2014
(pp. 106–35)
Abstract
We study a set of bilateral Nash bargaining problems between an upstream input supplier and several differentiated but competing retailers. If one bilateral bargain fails, the supplier can sell to the other retailers. We show that, in a disagreement, the other retailers' behavior has a dramatic impact on the supplier's outside options and, therefore, on input prices and welfare. We revisit the countervailing buyer power hypothesis and obtain results in stark contrast with previous findings, depending on the type of outside option. Our results apply, more generally, to the literature that incorporates negotiated input prices using bilateral Nash bargaining.Citation
Iozzi, Alberto, and Tommaso Valletti. 2014. "Vertical Bargaining and Countervailing Power." American Economic Journal: Microeconomics, 6 (3): 106–35. DOI: 10.1257/mic.6.3.106Additional Materials
JEL Classification
- C72 Noncooperative Games
- C78 Bargaining Theory; Matching Theory
- D43 Market Structure and Pricing: Oligopoly and Other Forms of Market Imperfection
- L13 Oligopoly and Other Imperfect Markets
- L14 Transactional Relationships; Contracts and Reputation; Networks
- L81 Retail and Wholesale Trade; e-Commerce
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