Markups, Markdowns, and Bargaining in Vertical Supply Chains

Rémi Avignon (), Claire Chambolle (), Etienne Guigue () and Hugo Molina
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Rémi Avignon: SMART - Structures et Marché Agricoles, Ressources et Territoires - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Rennes Angers - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement
Claire Chambolle: UMR PSAE - Paris-Saclay Applied Economics - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Etienne Guigue: LMU Munich

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Abstract: This article bridges monopoly, monopsony, and countervailing power theories to analyze their welfare implications in a vertical supply chain. We develop a bilateral monopoly model with bargaining that accommodates upstream monopsony and downstream monopoly power. In equilibrium, the ‘‘short-side rule'' applies: the quantity exchanged is determined by the firm willing to trade less. Welfare is maximized when each firm's bargaining power exactly countervails the other's market power. Otherwise, double marginalization arises in the form of double markdownization under excessive downstream bargaining power, or double markupization under excessive upstream bargaining power. We offer novel insights for price regulation and competition policy.

Keywords: Monopsony power; Bilateral monopoly; Countervailing buyer power; Bargaining; Markdowns; Markups (search for similar items in EconPapers)
Date: 2025-08-27
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Working Paper: Markups, Markdowns, and Bargaining in a Vertical Supply Chain (2025)
Working Paper: Markups, Markdowns, and Bargaining in a Vertical Supply Chain (2025)
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