Vertical bargaining and countervailing power

Alberto Iozzi and Tommaso Valletti

No 160, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: We study the existence of countervailing buyer power in a vertical industry where the input price is set via Nash bargainings between one upstream supplier and many differentiated but competing retailers. In case one bilateral bargaining fails, the supplier still has the ability to sell to the other retailers. We show that the capacity of these other retailers to react in the final market has a dramatic impact on the supplier’s outside options and, ultimately, on input prices and welfare. Under downstream quantity competition, we find either no or opposite support to the hypothesis of countervailing power on input prices, as the retail industry becomes more concentrated. With price competition, we find a case for countervailing power, but its existence depends on the degree of product differentiation and on the ability of competing retailers to react to a disagreement.

Keywords: Countervailing buyer power; Nash bargaining. (search for similar items in EconPapers)
JEL-codes: L50 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-05-28, Revised 2010-05-28
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Vertical Bargaining and Countervailing Power (2014)
Working Paper: Vertical bargaining and countervailing power (2014)
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