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Buyer power and mutual dependency in a model of negotiations

Roman Inderst and Joao Montez

RAND Journal of Economics, 2019, vol. 50, issue 1, 29-56

Abstract: We study bilateral bargaining between several buyers and sellers in a framework that allows both sides, in case of a bilateral disagreement, flexibility to adjust trade with each of their other trading partners and receive the gross benefit generated by each adjustment. A larger buyer pays a higher per‐unit price when buyers' bargaining power in bilateral negotiations is sufficiently low, and a lower price otherwise. An analogous result holds for sellers. These predictions, and the implications of different technologies, are explained by the fact that size is a source of mutual dependency and not an unequivocal source of power.

Date: 2019
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Working Paper: Buyer Power and Mutual Dependency in a Model of Negotiations (2019) Downloads
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